Corporate Governance Report - BKS Bank

ANNUAL REPORT 2008 

Committed to 

responsible 

growth. 

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2 Overview / Management Board / Investor Relations / Group Management Report / Consolidated Financial Statements 08 / Additional Notes 

1922 – 1930 

1931 – 1940 

1941 – 1950 

1951 – 1960 

1961 – 1970 

1971 – 1980 

1981 – 1990 

1991 – 2000 

2001 – 2007 

2008 

BKS Bank. Building on decades of growth. 

In 1922, A. v. Ehrfeld entered into a limited partnership with Bayerische Hypotheken- und 

Wechselbank called Kärntner Kredit und Wechsel-Bankgesellschaft Ehrfeld & Co. In 1928, the 

company was transformed into a joint-stock corporation called Bank für Kärnten with capital 

stock of one million Austrian schillings. Besides its Head Office in Klagenfurt, it already 

had branches in Villach, Spittal an der Drau and Wolfsberg. 

During the global economic crisis, the Bank’s growth was steady and, all in all, sustainable 

and balanced. 

Although World War II also left its mark on Bank für Kärnten, the bank was able to make an 

important contribution to Carinthia’s economic reconstruction. 

Bank für Kärnten took advantage of the abolition of controls on direct arbitrage, enabling 

it to offer its customers prompter service in the international business field. The Bank 

enlarged its existing branches to cope with growing business volumes. 

In 1964, the Bank added small personal loans to its range. In 1965, it entered into an alliance 

with the Wüstenrot building and loan association, further extending the product 

line. In 1970, it issued the first joint Drei-Banken (3 Banks) bond together with Bank für 

Oberösterreich und Salzburg and Bank für Tirol und Vorarlberg. 

In 1973, Bank für Kärnten set up Liegenschaftsverwaltungs- und Verwertungs-Ges.m.b.H., 

which owns and manages real estate. Important new nodes were added to the branch 

network in Carinthia. 

In 1983, the Bank opened its first branch in Styria, and its name was changed to Bank 

für Kärnten und Steiermark Aktiengesellschaft (BKS: Bank for Carinthia and Styria). Since 

1986, BKS shares have been listed on the Vienna Stock Exchange. In 1988, the Bank set 

up insurer Drei-Banken Versicherungs-AG, and it also entered the leasing market in the 

same year. More branches were opened in Carinthia and Styria. The first branch in Vienna 

opened in 1990. 

In 1991, BKS and its sister banks set up Drei-Banken-EDV GmbH to capitalize on rationalization 

and synergistic effects in the IT field. In 1998, the Bank expanded southwards, entering 

the Slovenian market by acquiring a leasing company based in Ljubljana. In 2000, BKS 

and its sister banks made their first joint appearance as the 3 Banken Group. Voluntary 

cooperation of this kind between these three independent banks gives them the strength 

of a major bank. 

In 2005, the company’s name was changed to BKS Bank AG to allow for its rapidly developing 

international profile. The Bank’s merger with Die Burgenländische Anlage & Kredit 

Bank AG enlarged its branch network in Austria. Abroad, it built up a branch network 

in Slovenia and opened representative offices in Italy and Hungary. In 2006, BKS Bank’s 

assets topped €5 billion for the first time. It acquired Kvarner banka d.d. in Croatia and 

pressed ahead with its market offensives in Slovenia, Italy and Hungary. In 2007, BKS 

Bank’s representative office in Bratislava opened its doors, and during another successful 

takeover, KOFIS Leasing was acquired, assimilated into the BKS Bank Group together with 

its branch network in Slovakia, and renamed as BKS-Leasing a.s. 

Kvarner banka d.d. was renamed as BKS Bank d.d. and opened a branch in Zagreb, the 

medium-term goal being to extend its operations as a so-called universal bank to cover 

areas outside the Rijeka region. In Italy, we are making preparations to set up a banking subsidiary 

based in Padova. To strengthen the core capital of our Kreditinstitutsgruppe (credit 

institution group), BKS Bank issued its first hybrid bond, which sold very well. Despite the 

raging economic and financial crisis, BKS Bank achieved the second-highest profit in its 

corporate history.

Overview / Management Board / Investor Relations / Group Management Report / Consolidated Financial Statements 08 / Additional Notes 

Contents 

Page 

Overview 2 

Preface by the Management Board 4 

Investor relations 14 

The Company’s boards and officers 16 

Supervisory Board’s Report 18 

Corporate Governance Report 20 

BKS Bank’s shares 25 

Group Management Report 32 

The economic environment 34 

Notes on the scope of consolidation 40 

Results of operations 44 

Assets, liabilities and financial position 49 

Own funds 52 

Activities abroad 54 

Segment Report 57 

Risk Report 72 

Organization and IT 78 

Staff Report 81 

Communication 84 

Sustainability Report 87 

Outlook for 2009 90 

Consolidated Financial Statements 92 

Income Statement for the 2008 Financial Year 96 

Balance Sheet as at 31 December 2008 97 

Statement of Changes in Equity 98 

Cash Flow Statement 99 

Notes to the Consolidated Financial Statements 100 

Closing remarks by the Management Board 128 

Profit Appropriation Proposal 129 

Auditors’ Report 130 

Additional Notes 132 

Organizational structure of the BKS Bank Group 134 

Key equity investments 135 

List of branches and representative offices 136 

The 3 Banken Group at a glance 138 

Glossary 140 

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6 

Heimo Penker, CEO

Résumé 

Heimo Penker 

Heimo Penker has been the CEO of BKS Bank since 2005. His remits within the Management 

Board include corporate and business banking, retail banking, human resources, service 

and production. In addition, he is responsible for business operations in the Bank’s 

markets in Carinthia, Styria and Vienna inside Austria and in the Friuli and Veneto regions 

of Upper Italy. 

Heimo Penker was born in Seeboden on Lake Millstatt in 1947. Before joining BKS Bank 

in 1972, he was assistant lecturer at the Institute of Public Finance of the Hochschule für 

Welthandel (now the Vienna University of Economics and Business Administration) in 

Vienna. Having held a number of posts at BKS Bank, he was appointed to the Management 

Board in 1984 and became its official spokesman in 1997. His appointment has been 

extended until 31 March 2014. 

Supervisory board posts and similar appointments: 

– Bank für Tirol und Vorarlberg AG, Innsbruck 

– Oberbank AG, Linz 

– Oesterreichische Kontrollbank AG, Vienna 

– Generali Holding Vienna AG, Vienna 

– BKS Bank d.d., Rijeka 

– BKS-Leasing a.s., Bratislava 

Other important posts: 

– Deputy Chairman of the management board of Verband der österreichischen Banken und 

Bankiers (Austrian Bankers’ Association) 

– Einlagensicherung der Banken und Bankiers GmbH, Vienna (advisory board) 

– Financial officer and chairman of the banking and insurance division of 

Wirtschaftskammer Kärnten (Carinthian economic chambers) 

– Honorary Consul of the Republic of Italy 

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Herta Stockbauer

Résumé 

Herta Stockbauer 

Within the Management Board of BKS Bank, Herta Stockbauer is responsible for international 

business, treasury operations, credit risk management, controlling and accounts, 

organization and information technology. Besides the Bank’s subsidiaries in Austria and 

abroad, she is also responsible for operations in its Burgenland region inside Austria and 

its Slovenia, Croatia, Hungary and Slovakia regions abroad. She was appointed to the 

Management Board in July 2004. Her appointment has been extended until 1 July 2014. 

Herta Stockbauer was born in Klagenfurt in 1960. After completing a degree in commercial 

science at Vienna’s University of Economics and Business Administration, she worked 

as a lecturer at Klagenfurt University’s Institute of Commercial Science until joining BKS 

Bank in 1992. Within BKS Bank, she worked in corporate and business banking and securities 

operations before moving to Controlling and Accounts, of which she became head in 

1996. 

Supervisory board posts and similar appointments: 

– Drei-Banken Versicherungs-Aktiengesellschaft, Linz 


– BKS-leasing Croatia d.o.o., Zagreb 

– BKS-Leasing a.s., Bratislava 

– Universitätsrat der Alpe-Adria-Universität, Klagenfurt (Chairperson) 

Other important posts: 

– Member of the management board of IV-Kärnten 

– Member of the management board of respACT - austrian business council for sustainable 

development 

– Honorary Consul of the Kingdom of Sweden 

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Dear shareholder, 

Dear customer, 

Dear business associate of 

BKS Bank, 

The year 2008 began very positively, but it brought us a raft of unforeseen and unthinkable 

disasters towards year-end. In the summer, the subprime crisis, after smouldering 

for months, triggered the collapse of the United States’ biggest mortgage lender. This 

finally culminated in the insolvency of investment bank Lehman Brothers, which filed for 

bankruptcy protection under Chapter 11 of the US Bankruptcy Code. In this unique case, 

the “too big to fail” principle itself failed. The effects on global events in the money and 

capital markets were catastrophic. A massive crisis of confidence between banks was the 

direct consequence. 

Virtually nothing was traded in the interbank market any more. Instead, large volumes 

were deposited with central banks. This trend developed into a persistent liquidity crisis. 

Because the waves of bad news coming in from the world of finance — and, as time 

passed, from the so-called real economy — kept coming, interbank business was slow to 

return to something approaching normal. At the same time, the bottom dropped out of 

stock markets around the world and interest rate spreads increased dramatically. In turn, 

this meant that banks in particular suffered massive realized and unrealized losses, and 

in the case of complex products, valuation itself became the central issue as it proved 

impossible to determine fair values in largely inactive markets. 

Consequently, last year will be remembered as a tough year for banks. None of us had predicted 

or was expecting a cascade of negative events on this scale. Even in mid-2008, it was 

still unimaginable that virtually every major economy in the world could be forced to spend 

billions on recapitalizing or giving liquidity support to banks and, in some cases, insurers. 

However, BKS Bank held its own well even in this difficult and challenging environment. 

Although we are not able to report record profits in 2008, our consolidated net 

profit of €41.9 million was the second-highest in our corporate history. Indeed, our 

cost:income ratio of 50.1 per cent set a new BKS Bank record as well as being outstanding 

by the standards of the industry as a whole. Business volumes also went on growing, 

increasing our assets from €5.75 billion to nearly €6 billion. This growth was driven 

largely by corporate and business and retail banking operations. In view of the turbulent 

markets, volumes of interbank business fell, and there was only a limited increase in the 

financial assets held in our Treasury portfolio. 

These very satisfactory results in a more than difficult environment meant that we were 

able to get by without any government help, and we intend to keep it that way. To help us 

do so, in the autumn, we took further action to strengthen our capital base and to bring 

our capital adequacy ratios more closely into line with the figures that are now being seen 

as benchmarks in international markets by placing a hybrid capital bond in the fourth 

quarter. Our Tier 1 ratio increased from 5.84 to 6.90 per cent during the year as a result, 

notwithstanding considerable growth in the loan portfolio. Respectable additions to our 

reserves in the amount of €14 million also contributed to the increase in our Tier 1 ratio.


We view the success of the hybrid bond and the massive inflow of so-called primary 

deposits in the midst of a raging financial crisis as a huge vote of confidence from our 

customers — and we greatly appreciate it. Our business model has always been a conservative 

and cautious one. It is a policy that is proving particularly effective in these difficult 

times. We will therefore be more committed than ever to the fundamentals of our 

corporate orientation. 

Besides the financial crisis, another issue was very much on our minds during the 

year under review. In our letter to our shareholders for the first half of 2008 as well 

as in the relevant press releases, we informed our shareholders, customers and business 

associates about UniCredit’s announcement of its intention to sell its stake in the 

3 Banken banks, which it holds indirectly via Bank Austria Creditanstalt AG and its subsidiary 

CABO-Beteiligungs GmbH. The sale was to have been completed by the close of 

2008. However, in the end, the effects of the financial crisis prevented this change in our 

shareholder structure (in which we had been playing an active role), especially after the 

collapse of Lehman Brothers in September. We are not currently aware of any plans to 

recommence the selling process. Our attitude to the possibility of a change in our 

shareholder base remains the same: we are generally in favour of it. As has already been 

announced, it would not affect the independence and autonomy of BKS Bank and the 

3 Banken Group in general. 

2008 was an unusual year in every respect. However, there were also a number of welcome 

developments: 

– 25 years ago, the then Bank für Kärnten (Bank for Carinthia) entered the Styrian market, 

gradually positioning itself in that promising region under the name Bank für Kärnten 

und Steiermark (Bank for Carinthia and Styria). Today, we are one of the biggest banks 

in Styria, servicing 3,000 corporate and business banking customers and nearly 19,000 

retail banking customers. We celebrated this anniversary, as befitted the occasion, 

with a jubilee party for our customers and staff. 

– BKS Bank entered the Croatian market a decade ago, opening a representative 

office in Zagreb in 1998 and setting up BKS-leasing Croatia d.o.o. soon after. Having 

acquired Kvarner banka d.d. — renamed as BKS Bank d.d. at the beginning of September 

2008 — and having opened a branch in Zagreb in October, we now also offer customers 

our services outside the Rijeka region. Our new premises in the Eurotower in downtown 

Zagreb are also home to our leasing subsidiary BKS-leasing Croatia d.o.o. and our 

representative office in Croatia. 

– We have likewise been operating in the Slovenian market for a decade. Our presence 

there dates back to 1998, when we entered the market by acquiring a leasing 

company. 

– In Slovakia, our leasing subsidiary BKS-Leasing a.s. opened its fifth branch, in Banskà 

Bystrica. 

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– In Austria, we went on enlarging our branch network, opening new branches in 

Weiz and Deutschlandsberg and enlarging, relocating or rebuilding numerous other 

branches. As a result, we are already very broadly represented by our unmistakable 

lounge concept. 

The economic outlook for 2009 is very uncertain. As we have already said, there has not 

been a global crisis this severe in decades. All the Austrian economic research institutes 

are agreed that the economic downturn is not going to bottom out before the summer 

but that it should have done so by year-end. Because of the general uncertainty, 

the range of forecasts is wide. Austria’s real GDP is likely to shrink by between 0.5 and 

0.8 per cent. The forecasts for our most important foreign markets are also very uncertain. 

Whereas the forecast for Slovakia is relatively favourable, the economic outlook 

for Croatia is proving increasingly uncertain and an economic recovery — even a modest 

one — is not to be expected before 2010. However, we already plan to act in anticipation 

of that improvement today. 

We will therefore remain true to our solid growth strategy and will continue to carefully 

consider which of our business opportunities should be grasped and swiftly implemented. 

Our plans for this year also include extending our markets in Austria and abroad 

and, as part of this process, opening new branches and modernizing a number of existing 

ones. Several big projects have already begun: the launch of securities operations in Slovenia; 

the extension of our retail banking operations in Croatia; a synergy and efficiency 

orientated review of our organizational structures; further professional enhancement of 

our liquidity steering system; and further strengthening of our capital base. 

In the interests of a consistent dividend and fundraising policy, we recommend that the 

AGM approve the same dividend for the 2008 financial year as for the year before, namely 

€1.5 per share, notwithstanding the fall in profit. 

We would like to take this opportunity to thank our shareholders, customers and business 

associates for the trust they continued to place in BKS Bank during 2008. At the same 

time, we want to assure you that we will go on doing our utmost during 2009 to keep the 

adverse impact of the recession on BKS Bank as small as possible. We thank our staff for 

their dedication and for their willingness to accept the management decisions that had to 

be made during the exceptional year 2008, some of which were taken at short notice. 

Heimo Penker (CEO) 

Herta Stockbauer


MAnAGEMEnT BOArD rEMITS 

Heimo Penker Herta Stockbauer 

Internal Audit 

Office of the 

Management Board 

Corporate and Business Banking International and Treasury Business 

Retail Banking Controlling 

Human Resources Credit Risk Management 

Service and Production Operations 

Regional Remits Regional Remits 

Austria: 

Regional Head 

Offices 

Abroad Austria: 

Regional Head 

Office 

Abroad 

Klagenfurt Italy Burgenland Slovenia 

Villach Croatia 

Spittal Hungary 

Graz 

Vienna 

Slovakia 

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14 

Investo 

Relation

s 

The Company’s Boards and Officers 

Supervisory Board’s Report 

Corporate Governance Report 

BKS Bank’s Shares 

16 

18 

20 

25 

15

16 

Honorary 

President 

Chairman 

Vice-Chairman 

Vice-Chairman 

Ordinary Members 

Delegated by the 

Staff Council 

Staatskommissär 

(state commissioner) 

Stv. Staatskommissär 

(deputy state 

commissioner) 

Official Spokesman 

Ordinary Member 

Overview/Management Board/Investor Relations/Group Management Report/Consolidated Financial Statements 08/Additional Notes 

The Company’s Boards and Officers 

Heinrich Treichl 

Member of the Supervisory Board of BKS Bank AG since 21 December 1970. 

Honorary President since 23 April 1992. 

Representatives of the Equity Holders 

Hermann Bell, CEO (Ret.) of Oberbank AG 

Appointed until the AGM in 2013. First elected on 24 April 1972. 

Peter Gaugg, official spokesman of the management board of Bank für Tirol und 

Vorarlberg AG 


Franz Gasselsberger, MBA, CEO of Oberbank AG 


Reinhard Iro, chairman of the management board of Treibacher Industrie AG 


Dietrich Karner, CEO (Ret.) of Generali Holding Vienna AG 

Appointed until the AGM in 2011. First elected on 22 May 1997. 

Michael Kastner, tax consultant 


Wolf Klammerth, managing partner of Knoch, Kern & Co 


Josef Korak, CEO of Omya Central Europe 


Maximilian Meran, CEO (Ret.) of BKS Bank AG 


Karl Samstag, CEO (Ret.) of UniCredit Bank Austria AG 


Robert Zadrazil, member of the management board of UniCredit Bank Austria AG 


Josef Hebein, Chairman of the Central Staff Council of BKS Bank 

First delegated on 26 July 1999. 

Helmuth Binder, BKS Bank Graz 

First delegated on 1 January 2005. 

Gerhard Brandstätter, BKS Bank Spittal 

First delegated on 1 August 1995. 

Erna Finster, BKS Bank Vienna 

First delegated on 2 March 2008. 

Michael Hornböck, BKS Bank Head Office 

To 1 March 2008. 

Herta Pobaschnig, BKS Bank Head Office 

First delegated on 1 June 2007. 

Hanspeter Traar, BKS Bank Klagenfurt 

First delegated on 1 January 2003. 

Representatives of the Regulatory Authority 

Alois Schneebauer 

Appointed as of 1 August 1999. 

Johann Wittmann 

Appointed as of 1 August 2003. 


Heimo Penker, CEO 

Appointed until 31 March 2014. 


Appointed until 1 July 2014.


Each of the 11 representatives of the equity holders elected to the Supervisory 

Board of BKS Bank AG by the AGM is a banking or business expert. If they are persons 

standing in a close relationship to the 3 Banken Group and/or the ally of BKS 

Bank Generali Versicherung, they are not competing with BKS Bank. The comparable 

functions at Austrian and foreign listed companies that must by disclosed by every 

member of the Supervisory Board pursuant to Rule 58 C of Austria’s Corporate Governance 

Kodex are stated on BKS Bank’s website under BKS Bank / Boards and Officers. 

Committees set up by the Supervisory Board 

As a rule and insofar as responsibilities for individual matters have not been assigned to 

Supervisory Board committees, the Supervisory Board of BKS Bank performs its tasks 

during its plenary meetings. At present, the following committees have been set up: 

The Audit Committee is responsible for examining and preparing the adoption of the 

Annual Financial Statements, the Management report and the Profit Appropriation 

Proposal and for monitoring the effectiveness of the internal control system (ICS). The 

Audit Committee also examines any consolidated financial statements and makes a recommendation 

regarding the choice of Auditor, and it reports thereon to the Supervisory 

Board. It was convened in the first quarter of 2008. Its members were Hermann Bell, Franz 

Gasselsberger, Peter Gaugg, Michael Kastner, Josef Hebein and Hanspeter Traar. 

The Working Committee is convened as required. It is in permanent contact with the 

Management Board, giving it a suitable basis for supervising the Company’s management. 

In addition to preparatory powers, it also has decision-making powers. Cases 

referred to it must subsequently be brought to the attention of the Supervisory Board as a 

whole. The members of the Working Committee were Hermann Bell, Franz Gasselsberger, 

Peter Gaugg, Michael Kastner, Josef Hebein and Hanspeter Traar. 

The members of the Credit Committee were Hermann Bell, Franz Gasselsberger, Peter 

Gaugg, Josef Hebein and Hanspeter Traar. This committee makes decisions in credit matters 

and is kept regularly informed by the Management Board about developments in the 

loan portfolio. The Supervisory Board as a whole is subsequently informed about decisions 

made by the Credit Committee. 

The Personnel Committee is responsible for personnel decisions and nominations 

for membership of the Management Board. Its members were Hermann Bell and Peter 

Gaugg. 

All facts are 

investigated to 

minimize possible 

conflicts of interest. 

Responsibilities for 

individual matters 

have been assigned 

to Supervisory Board 

committees. 

17

18 

Regular exchanges 

of information take 

place between the 

Supervisory Board 

and the Management 

Board. 

The Supervisory 

Board is involved in 

all material business 

policy decisions. 


Dear Reader, 

The BKS Bank Group continued to stand its ground well in a difficult 2008 financial 

year. The Bank’s Supervisory Board actively monitored every strategic measure taken by 

the enterprise and provided support in an advisory capacity. In addition, it performed the 

tasks incumbent upon it by virtue of the law and the Articles of Association in accordance 

with the Corporate Governance Kodex. The basis for doing so was provided by the Management 

Board’s detailed real-time written and verbal reports to us on relevant aspects of BKS 

Bank AG’s business performance and that of key Group members. The Supervisory Board 

was therefore involved at all times in business policy decisions regarding financial, investment 

and human resources planning and was always kept adequately informed about the 

enterprise’s risk position and risk management activities. Management decisions and 

actions subject to approval pursuant to legislation, the Memorandum and Articles of 

Association (Satzung) or rules of procedure were examined and approved by the members 

of the Supervisory Board by way of draft resolutions or on the basis of written information. 

As the Chairman of the Supervisory Board, I, moreover, had regular exchanges of 

information with the Management Board. The Supervisory Board met once each quarter 

during the financial year. The attendance rate of the 11 representatives of the equity 

holders and six staff representatives was nearly 90 per cent. No member missed more 

than 50 per cent of its meetings. During the year under review, the Supervisory Board’s 

committees carried out the tasks assigned to them by the Management Board as a body in 

accordance with the law and the rules of procedure. The Supervisory Board as a body was 

notified of each committee decision in real time. The Supervisory Board’s Audit Committee 

carried out the tasks assigned to it in § 92 Abs 4 AktG (Austrian stock corporation act). 

As conditions in the international money and capital markets rapidly deteriorated, one 

of the main focuses of attention of BKS Bank’s Supervisory Board was on evaluating the 

enterprise’s medium-term and long-term potential for growth. Among other things, this 

body of representatives of the equity holders and the workforce addressed the possible 

effects of the global subprime crisis on Austrian banks, the burgeoning risks associated 

with foreign currency loans being highlighted by the Austrian Financial Market Authority 

(FMA) and the Austrian Nationalbank (OeNB), the status of the enterprise’s investment 

plans, compliance and anti-money laundering activities and the appointment of management 

personnel. The third meeting of the Supervisory Board extended the appointments 

of Heimo Penker and Herta Stockbauer as members of the Management Board by another 

five years. In addition, the Supervisory Board considered UniCredit’s announcement that 

it would be withdrawing as an equity holder of 3 Banken and the ongoing optimization of 

Group-wide corporate governance standards. Among other things, the rules of procedure 

of the Management Board and Supervisory Board were adapted to allow for the Group’s 

substantially enlarged business horizon. The Management Board’s application for permission 

for BKS Bank to acquire an indirect stake in Oesterreichische Clearingbank AG within 

the scope of the Bundesgesetz zur Stärkung des Interbankmarktes (Austrian interbank market 

reinforcement act) was granted. The Supervisory Board also concerned itself with the 

incorporation of MiFID into the enterprise’s compliance structure.


The 11 representatives of the equity holders in the Supervisory Board were unchanged 

during the period under review. The appointments of Hermann Bell, Reinhard Iro and Wolf 

Klammerth were renewed for the maximum period permitted by the Memorandum and 

Articles of Association. As for the members of the Supervisory Board delegated by the Staff 

Council of BKS Bank, Erna Finster succeeded the former Staff Council member Michael 

Hornböck as of 2 March 2008. 

The Auditors, KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, 

Zweigniederlassung Klagenfurt, audited BKS Bank’s accounts, Annual Financial Statements 

and Management Report. According to the results of the audit, the legal requirements were 

satisfied, and the audit did not give rise to any objections. The Annual Financial Statements 

and Management Report and the Auditors’ audit reports were presented to all the members 

of the Supervisory Board. The Annual Financial Statements received an unqualified 

auditors’ report. The Supervisory Board also examined the Annual Financial Statements, 

Management Report and Profit Appropriation Proposal. 

The Supervisory Board endorses the results of the audit, expresses its approval of the Annual 

Financial Statements together with the Management Report as submitted by the Management 

Board and approves the Company’s Annual Financial Statements for 2008, which are 

thus final for the purposes of § 125 Absatz 2 Aktiengesetz. The Supervisory Board concurs 

with the Management Board’s proposal that, as in the previous year, a dividend of €1.50 

per share be distributed out of net profit for the year 2008, resulting in a distribution of 

€7,020,000, and that the remaining profit be carried forward to a new account. The Consolidated 

Financial Statements and the Group Management Report, prepared in conformity 

with the International Financial Reporting Standards (IFRSs), were submitted to the 

Supervisory Board. 

The Consolidated Financial Statements as at and for the period ended 31 December 2008 

present fairly, in all material respects, the assets, liabilities and financial position of the 

Group. The notes on its profit or loss and cash flows prepared in accordance with the 

International Financial Reporting Standards (IFRSs) constitute an equally fair presentation in 

respect of the period from 1 January to 31 December 2008. The audit carried out by KPMG 

Austria GmbH Wirtschaftsprüfungs- und Steuer beratungsgesellschaft, Zweigniederlassung 

Klagenfurt, did not give rise to any objections. The Supervisory Board endorses the results 

of the audit and expresses its approval of the Consolidated Financial Statements together 

with the Group Management Report as submitted by the Management Board. 

The very good results achieved by the Bank in the year under review notwithstanding the 

troubled banking environment were mainly attributable to the dedication of Management 

and every member of staff. The Supervisory Board thanks them warmly for their work. 

Klagenfurt 

March 2009 

Hermann Bell 

Chairman 

The Supervisory 

Board appointments 

of Hermann Bell, 

Reinhard Iro and 

Wolf Klammerth are 

renewed. 

The Annual Financial 

Statements of BKS 

Bank receive an 

unqualified auditors’ 

report. 

Approval and 

adoption of the 

Annual Financial 

Statements and 

approval of the 

Profit Appropriation 

Proposal. 

Endorsement of the 

results of the audit 

of the Consolidated 

Financial Statements. 

Thanks to 

Management and 

staff. 

19

20 

Good corporate 

governance offers 

every stakeholder 

group a high degree of 

transparency. 

The Management 

Board and Supervisory 

Board have clearly 

affirmed their 

commitment to 

Austria’s Corporate 

Governance Kodex. 


Corporate Governance Report 

BKS Bank has always given high priority to responsible corporate governance. The preservation 

of the enterprise’s independence and that of the 3 Banken Group is the primary 

goal. It is ensured by sustainable earning power and a judicious risk policy. This will remain 

true in the future. Transparent teamwork between the Management Board, Supervisory 

Board and equity holders with the Bank’s long-term success in mind will be key if BKS Bank 

is to remain on the same sustained growth path as in prior years. Consequently, the Management 

Board of the listed company within the Group is placing particular emphasis on 

safeguarding, in a carefully balanced way, the interests of all the parties that have a stake 

in the business success of BKS Bank, including in particular its equity holders, customers, 

employees and business associates and the general public. The frame of action for effective 

and sustainable corporate governance is based on Austrian stock corporation and 

capital markets law, Austria’s Corporate Governance Kodex, BKS Bank’s Memorandum and 

Articles of Association and the rules of procedure of the Management Board and Supervisory 

Board. 

BKS Bank’s corporate governance code 

Austria’s Corporate Governance Kodex (CGK: corporate governance code) was presented to 

the public on 1 October 2002 as an important building block for the continued development 

and stimulation of the Austrian capital markets. The code undergoes annual review 

and adaptation by the Österreichischer Arbeitskreis für Corporate Governance (Austrian 

working group on corporate governance). Its rules are divided into three groups: Legal 

Requirements are based on mandatory legal standards that must be adhered to by all listed 

Austrian companies. In addition, there are so-called Comply or Explain rules, non-compliance 

with which must be publicly explained. Finally, the Kodex also includes the Recommendations. 

These are proposals only and do not require any explanations or disclosures. 

The Management Board and Supervisory Board of BKS Bank AG have elected to comply 

with all the material requirements of the Kodex and only to deviate from it where BKS 

Bank AG’s specific circumstances or the legislative provisions governing banks make this 

necessary. Modifications of individual rules are adopted as soon as possible. BKS Bank 

only deviates from Comply or Explain rules (C rules) if its individual and specific circumstances 

or those of the 3 Banken Group or the legislative provisions governing banks so 

require. During the 2008 financial year, BKS Bank adhered to all the corporate governance 

principles that applied to it, and it will continue to base its actions on them during the current 

2009 financial year. BKS Bank’s corporate governance code can be accessed in full at 

www.bks.at under Investor Relations. 

Austrian stock corporation law provides for the strict separation of functions at the personal 

level between the executive body (the Management Board) and control (the Supervisory 

Board). It therefore firmly rules out one person’s simultaneous membership of both 

boards within the enterprise.


The Management Board: a responsible management task 

In the performance of its activities, the Management Board of BKS Bank primarily concerns 

itself with defining BKS Bank’s corporate goals and strategic orientation. It is responsible 

for giving concrete form to corporate goals, defining corporate strategy, and steering and 

supervising operational units and the Group-wide risk control system. It reports regularly 

and in full to the Supervisory Board — in the spirit of the clear separation between enterprise 

management and enterprise control required by stock corporation law — on BKS 

Bank’s business performance and financial position, the results of its operations, its plans 

and its success in attaining its goals as well as its strategy and the existing risks. The Management 

Board’s reporting duties also include preparing regular quarterly reports on the 

business performance of the Group as a whole. Its actions are based on legislative requirements, 

the Memorandum and Articles of Association of BKS Bank, the rules of procedure 

of the Management Board adopted by the Supervisory Board and the Bank’s Corporate 

Governance Code. As specified in the rules of procedure, certain Management Board 

decisions of particular importance, including, for instance, decisions regarding material 

acquisitions or sales of strategic equity investments, require Supervisory Board approval. 

The Supervisory Board: an advisory and controlling role 

During the year under review, the Supervisory Board consisted of 11 representatives of 

the equity holders and six members delegated by the enterprise’s Staff Council. It supervises 

and advises the Management Board in its conduct of business. In addition, it is, in 

particular, responsible for appointing the members of the Management Board and examining 

the annual financial statements of BKS Bank AG and the BKS Bank Group. Depending 

on the enterprise’s specific circumstances at the time and on the number of board 

members, the Supervisory Board sets up professionally qualified committees to increase 

the efficiency of its work and to deal with complex matters. They operate in accordance 

with the requirements of the Aktiengesetz (stock corporation act) and Austria’s Corporate 

Governance Kodex. On the reporting date, an Audit Committee, a Working Committee, a 

Credit Committee and a Personnel Committee were in place. So as not to present these 

committees twice, we refer the reader to our comments on page 17. 

The Chairman of the Supervisory Board coordinates the work of these committees and 

chairs the Supervisory Board’s regular meetings. He and the members of the Supervisory 

Board have regular exchanges of information with the Management Board and are 

thus kept continuously informed about the enterprise’s business policies, corporate plans 

and strategy. The Supervisory Board must approve the enterprise’s annual plan as well 

as the Annual Financial Statements of the Group as a whole in the light of the Auditors’ 

report. The report by the Chairman of the Supervisory Board, Hermann Bell, provides 

further details from page 18 of this Annual Report. 

A clear separation 

between enterprise 

management functions 

. . . 

. . . and enterprise 

control. 

21

22 

A guaranteed minimum 

dividend for preference 

shareholders. 

Our remuneration 

system is designed to 

take account of the 

enterprise’s long-term 

performance. 


Equity holders and the Annual General Meeting (AGM) 

BKS Bank’s equity holders exercise their rights during the Annual General Meeting, which 

is where they also exercise their voting right. The only exception to the one-share-onevote 

rule affects preference shareholders. However, when it comes to dividend distributions 

— which have, in the past, been the same for all share classes — the Memorandum 

and Articles of Association give preference shareholders preferred treatment. The minimum 

dividend payable to preference shareholders, payable, if necessary, in a later period, 

is 6 per cent of their respective interest in the Company’s capital stock. The decisions 

reserved to the AGM by law or by the Memorandum and Articles of Association include, 

in particular, decisions regarding the appropriation of net profit, planned capital increases 

and decreases and amendments to the Memorandum and Articles of Association, the discharge 

of the members of the Management Board and Supervisory Board and the election 

of members of the Supervisory Board and the Auditors. A report on BKS Bank’s 68 th 

Annual General Meeting held on 28 May 2008 can be accessed at www.bks.at under Investor 

Relations > Publications. 

Remuneration report 

The remuneration of each member of BKS Bank’s Management Board is based on the scope 

of that member’s tasks, his or her responsibilities, our success in achieving our business 

objectives and the enterprise’s financial position. It consists of both fixed elements and 

success-related elements based on measures of long-term performance. When a member’s 

duties end, his or her termination benefits will depend essentially on legislative provisions. 

The total remuneration paid to the members of the Management Board during the 

financial year is disclosed in the notes to the Annual Financial Statements, on page 117. 

The AGM decides the annual fees and bonuses payable to the Supervisory Board and the 

amount of attendance fees. The Chairman of the Supervisory Board was voted remuneration 

of €15,000 from the 2008 financial year; his or her deputies were voted remunerations 

of €11,000 each, and the other representatives of equity holders were voted 

remunerations of €9,000 each. The attendance fee in each case is €100. Remuneration 

of the Supervisory Board is disclosed in the Notes to the Annual Financial Statements, 

on page 117. Staff representatives perform their duties within the scope of their employment. 

neither consideration nor benefits were paid for work performed personally, 

including in particular advisory and intermediary work. It is worthy of note that BKS Bank 

had concluded stock option agreements pertaining to shares of BKS Bank neither with the 

members of the Management Board nor with the members of the Supervisory Board nor 

with senior personnel. 

Compliance Organization 

BKS Bank expects its employees to show integrity and a sense of responsibility to the 

enterprise, to handle so-called insider information conscientiously, and to strictly separate 

the enterprise’s affairs from their private interests so as to prevent conflicts of interest


that could entail legal risks. In order to satisfy the provisions of the Börsegesetz (Austrian 

stock exchange act), the Wertpapieraufsichtsgesetz (WAG 2007: Austrian securities supervision 

act) and the Emittenten-Compliance-Verordnung (ECV: Austrian issuers compliance 

directive), BKS Bank has a body of internal rules and regulations modelled on the 

Austrian banking industry’s Standard Compliance Code that is founded on the principle of 

commensurability. 

During the year under review, the members of our Compliance Organization, who report 

directly to the Management Board and are not involved in active securities operations, 

defined 16 so-called confidentiality areas of a permanent nature and two ad hoc confidentiality 

areas. One of the main focuses during the year under review was on the evaluation 

and implementation, in as practical a way as possible, of the extensive and detailed 

provisions of WAG 2007. Besides the Markets in Financial Instruments Directive (MiFID), 

WAG 2007 also touches on other EU directives and Austrian legislation. The meticulous 

incorporation of the regulatory requirements into the existing compliance organization 

structures and their implementation throughout the Group took place in close cooperation 

with Internal Audit and Risk Controlling, which are central administrative departments. 

The Supervisory Board was kept constantly informed about the regular checks and 

activities carried out by the Compliance Organization. They did not expose any breaches 

during the year under review. 

Risk management 

As an internationally active bank, BKS Bank is exposed to numerous risks. risk policy principles 

and guidelines are enshrined in BKS Bank’s risk Strategy. The Management Board 

reviews, updates and communicates these guidelines throughout the enterprise on an 

annual basis. The role of risk Controlling — a separate unit within the central Controlling 

Department — is to carry out the systematic and comprehensive recognition, analysis, 

quantification, management and limitation of BKS Bank’s risk positions across the 

Group. The resulting risk analyses are given to the Management Board and the operating 

units that are affected as well as to the Supervisory Board as a body on a quarterly basis. A 

detailed review of BKS Bank’s risk policy and risk management activities is provided in the 

Risk Report, from page 72, and in the Notes, from page 118. 

Internal control system 

By closely involving Internal Audit and Risk Management, the BKS Bank Group’s Group-wide 

internal control system is structured in such a way as to provide the Management Board 

and the Supervisory Board committees with reasonable assurance of the reliability of the 

enterprise’s reporting processes. Besides the tasks assigned to it by the Aktiengesetz and 

BWG, the Audit Committee also monitors the internal control system’s effectiveness. 

Clearly defined anti-money laundering policies 

BKS Bank believes that it has special responsibilities, as an Austrian bank of systemic 

23 

BKS Bank’s compliance 

organization ensures 

the ethical and lawful 

behaviour of its boards, 

officers and employees. 

Risk management 

ensures the extensive 

capturing and 

management of 

enterprise risks. 

The internal control 

system ensures 

the high quality of 

enterprise reporting 

processes.

24 

BKS Bank is committed 

to the international 

fight against money 

laundering and 

terrorism. 

A prompt, transparent 

and detailed flow of 

information to 

investors. 


significance, in the international fight against money laundering and terrorism financing. It 

has always pursued a risk-focused Know Your Customer policy in accordance with the relevant 

legislative provisions. Since the end of 2007, BKS Bank has successfully been putting 

the European Union’s 3 rd Money Laundering Directive — which is based on the recommendations 

made by FATF (the Financial Action Task Force on Money Laundering) — into 

effect. During the year under review, BKS Bank introduced an IT programme on the basis 

of its anti-money laundering (AML) needs that is designed to more effectively combat 

money laundering and the possibility of terrorism financing. In addition to carrying out indepth 

anti-money laundering research into concealed account movements and suspicious 

financial transactions, we were, above all, able to significantly refine our means of establishing 

the true identities of customers, including, among others, politically exposed persons 

(PEPs). An on-the-spot AML audit carried out by the Austrian Nationalbank in late autumn 

confirmed that BKS Bank has sufficiently prioritized money laundering issues and that no 

threat of money laundering existed. 

Director’s dealings 

Under § 48 d BörseG (Austrian stock exchange act), the members of the Management 

Board of BKS Bank, the members of the Supervisory Board and persons in a close relationship 

to these persons are obliged to disclose the purchase or sale of BKS Bank shares 

if the amount of the transactions carried out for their own account during a calendar 

year equals or exceeds €5,000. During the year under review, one reportable purchase 

was recorded. A corresponding record was immediately sent to the Finanzmarktaufsicht 

(Austrian Financial Market Authority) and published at www.fma.gv.at. On the reporting 

date, BKS Bank shares held by the members of the Management Board and Supervisory 

Board totalled less than one per cent of the shares in issue by the Company. 

Transparent, real-time reporting 

To ensure the greatest possible transparency, BKS Bank keeps its equity holders and 

employees, the media and the interested public informed about the enterprise’s position on 

a regular, real-time basis. It has a fair disclosure policy, treating all addressees equally when 

disclosing information. The preferred information platform is the Internet. In the interests 

of good corporate governance, all data of relevance for investor relations purposes are 

available at http://www.bks.at. In addition, regular publications produced in accordance 

with the legislative ad hoc criteria, including the annual and semi-annual financial reports 

and interim reports on the first quarter and first three quarters and announcements of 

new bond issuances and of changes to key equity investment thresholds are also published 

on OeKB’s Emittenten-Portal Austria (Austrian issuers portal) and via the APA-OTS euro 

adhoc service. Every BKS Bank employee has round-the-clock access to the Group-wide 

intranet as a source of information, including key internal BKS Bank announcements.


BKS Bank’s shares 

An international financial system in difficulties 

2008 will go down in history as the year when the world was hit by an unprecedented 

financial and economic crisis. It has been far worse than any previous market turbulence 

since the end of World War II. 

For some time, the international financial markets have been in the sway of the American 

mortgage and financial crisis, which broke out visibly in mid-2007. Above all, institutional 

investors such as insurers and pension funds as well as numerous banks had bought 

asset backed securities (ABSs) and collateralized debt obligations (CDOs) to improve their 

returns in periods of low interest rates. In the end, massive corrections in the banking system 

and property markets, highly volatile raw material and currency markets and growing 

problems in important emerging markets led to a flood of nightmarish news from key economic 

sectors. The financial and construction sectors, the automotive, steel and chemical 

industries and the IT industry were hardest hit. In the interbank market, which was 

increasingly at the centre of the financial markets crisis in 2008, the resulting distortions 

triggered an unprecedented liquidity crunch. The flow of very short-term credit used by 

banks to equalize liquidity among one another dried up, considerably increasing companies’ 

financing costs. 

The financial markets crisis escalated, especially during the second half. This led to the 

partial nationalization of big US mortgage banks threatened with insolvency and the spectacular 

demise of a number of American investment banks, only two of which, namely 

Morgan Stanley and Goldman Sachs, survived. Having reported quarterly losses in the 

STOCK MArKET PErFOrMAnCE In 2008 

Stock Exchange Index Closing Value +(-) Index Compared with Previous Year 

Amsterdam AEX General 245.94 (52.3%) 

Frankfurt DAX 4,810.20 (40.4%) 

Hong Kong Hang Seng 14,387.48 (48.3%) 

London FTSE 4,434.17 (31.3%) 

New York Dow Jones Industrial 8,776.39 (30.6%) 

New York Nasdaq Composite 1,577.03 (40.5%) 

Paris CAC40 3,217.97 (42.7%) 

Tokyo Nikkei 225 8,859.56 (42.1%) 

Wien ATX 1,750.83 (61.2%) 

Zurich DJ Euro Stoxx 50 2,451.48 (44.3%) 

Zurich Swiss Market 5,534.53 (38.8%) 

Global MSCI in € 66.13 (40.4%) 

Global MSCI in US$ 915.97 (42.3%) 

– 0 + 

Escalating turmoil in 

the financial markets 

presages a global 

recession. 

The main international 

equity indices end the 

2008 stock market year 

with big losses. 

25

26 

Painful restructuring 

mainly affects 

American mortgage 

and investment banks. 

Massive monetary 

policy intervention 

by central banks. 

The US Fed cuts its 

key rate to an all-time 

low of close to zero 

per cent. 

KEY rATES 

7 

6 

5 

4 

3 

2 

1 

0 

00 


billions, Bear Stearns and Lehman Brothers became fatalities of the liquidity crisis, and a 

glance in the books of US investment bank Merrill Lynch, likewise severely shaken, led to its 

sale to Bank of America. Looking back, it is generally agreed that Lehman Brothers’ forced 

retreat into bankruptcy protection was key to the intensification of the crisis and marked a 

turning point in financial history as a major failure of government crisis management. 

Growing panic about the impending collapse of the global economy triggered losses on 

major stock exchanges around the world. The fall in prices that began in May and continued 

headlong from September did not halt until mid-November. Although the knock-on 

effects of the financial crisis on the real economy were mitigated by concerted action on 

the part of the ECB, the US Federal reserve (the Fed) and other central banks — which 

supported stricken players in the financial markets with financial and economic packages 

worth billions as well as a pragmatic, low interest rates policies — they could 

not be prevented. However, subsequent countermovements in prices gave stocks a 

reprieve until year-end, particularly benefiting financial equities, which had substantially 

underperformed the rest of the market. 

As the US economy fell into recession, the Fed reacted by cutting its key rate by over five 

percentage points to an all-time low of between zero and 0.25 per cent in the space of 

just 16 months. The ECB, whose primary goal is to preserve price stability, also revised its 

projections for economic growth and inflation in the eurozone to reflect the deepening 

recession scenario, cutting its key rate from a high of 4.25 per cent in July to 2.0 per cent on 

15 January 2009. In the bond market, many investors were looking for safe havens, pushing 

the average monthly yield on US benchmark bonds and their European equivalents 

Source: OenB. 

01 02 03 04 05 06 07 08 

USA Eurozone Switzerland Japan 

LOnG-TErM BOnD YIELDS AnD THE 

THrEE-MOnTH EURIBOR Source: OenB . 

7 

6 

5 

4 

3 

2 

1 

0 

00 

01 02 03 04 05 06 07 08 

US Benchmark Yield 

Three-Month Euribor 

Eurozone Benchmark Yield


130 

120 

110 

100 

90 

80 

70 

up to about 3.6 and 2.6 per cent, respectively, in the course of the year. During 2008, the 

3-month money rate (Euribor) dropped by 156 basis points to 3.29 per cent. 

End-of-year comparisons also mirrored the dramatic crash on the world’s stock markets. 

The main US indices — the Dow Jones Industrial and Nasdaq Composite — slumped 

by 30.6 and 40.5 per cent, respectively, to 8,776.39 and 1,577.03 points. Japan’s Nikkei 225 

fell by about one fifth to end the stock market year at 8,859.56 points, a level last reached 

in 1982. The other major stock exchanges, including in particular Frankfurt, London, Hong 

Kong and Zurich, also suffered a paralyzing downturn with sobering losses of between 

40 and 50 per cent. The Vienna stock exchange had its most critical year since the introduction 

of the ATX — Austria’s key index — 18 years previously. In the wake of the financial 

crisis, the ATX fell by roughly 61 per cent to 1,750.83 points. With the exception of 

Oesterreichische Post AG, practically every ATX stock registered a double-digit loss. The 

aggregate market capitalization of all the listed companies in Austria fell by €104.6 billion 

to €52 billion. 

Share performance 

BKS Bank’s ordinary and preference shares are listed in the Vienna stock exchange’s Standard 

Auction Market segment. They held their own very well during the year under review, but 

in the end, they couldn’t entirely escape the drop in share prices. Having peaked at €113.5 

during the first quarter, our ordinary share closed the year at €110. Meanwhile, following 

a high of €101 in January, the preference share gradually fell to €92. Our IFRS earnings per 

share were slightly down on 2007, falling from €11.06 to €9.09. The ordinary no-par share’s 

P/E based on its price at the end of the year was 12.28. The no-par preference share had a 

P/E of 10.27. 

PErFOrMAnCE OF BKS BAnK’s OrDInArY AnD PrEFErEnCE SHArES 

H1 2007 H2 2007 

H1 2008 

H2 2008 

BKS ordinary no-par share BKS no-par preference share € 

Massive slumps on 

stock markets around 

the world. 

The Vienna stock 

exchange delivers a 

sobering performance. 

BKS Bank AG shares 

hold their own well 

during the 2008 stock 

market year. 

27

28 

BKS Bank shares: a 

profitable long-term 

investment. 

BKS Bank AG’s capital 

stock is represented by 

4,380,000 ordinary nopar 

shares and 300,000 

no-par preference 

shares. 

The shareholders 

shown in red have 

signed a syndicate 

agreement. 


The drop in BKS Bank’s market capitalization versus year-end 2007 was comparatively small, 

as it fell by €17.7 million to €509.4 million. Up to the end of 2008, the annual average return 

on a share with a nominal value of öS100 bought at its issue price of öS425 on 17 June 

1986 — the day when the ordinary share of the company then called Bank für Kärnten und 

Steiermark was launched on the Vienna stock exchange — was 7.7 per cent after tax. This 

figure takes into account all the changes in nominal capital, dividend distributions and price 

movements that have occurred since 1986. 

Capital and shareholder structure 

BKS Bank AG’s subscribed capital stock has been unchanged at €50.0 million since 2002. It 

is represented by 4,380,000 ordinary no-par shares and 300,000 non-voting no-par preference 

shares. Instead of each share having a par value, it is the number of shares in issue that 

is fixed at any one time. In other words, a no-par share represents the respective interest 

in capital stock (i.e. capital stock divided by the number of shares in issue). BKS Bank AG’s 

ordinary no-par shares have been listed on the Vienna Stock Exchange since 1986, the nopar 

preference shares since 1991. All BKS Bank AG shares are bearer shares. Both share 

classes are traded in the Standard Auction Market segment. The preference shares give 

their holders preferential treatment in respect of distributions of dividends. The associated 

minimum dividend, payable, if necessary, in a later period, is 6 per cent of the interest 

in capital stock represented by a share. This minimum dividend must always be paid if it is 

SHArEHOLDEr STrUCTUrE OF BKS BAnK 

6 

7 

5 

4 

3 

1 

2 

BY VOTInG InTErEST BY EqUITY InTErEST 

1 Oberbank AG 19.73% 1 Oberbank AG 18.47% 

2 Bank für Tirol und Vorarlberg AG 19.84% 2 Bank für Tirol und Vorarlberg AG 18.57% 

3 Generali 3 Banken Holding AG 7.95% 3 Generali 3 Banken Holding AG 7.44% 

4 Wüstenrot Wohnungswirtschaft 

gem. reg. Genossenschaft mbH 2.99% 

6 

7 

5 

4 


gem. reg. Genossenschaft mbH 2.85% 

5 Free float 12.20% 5 Free float 16.64% 

6 UniCredit Bank Austria AG 7.36% 6 UniCredit Bank Austria AG 8.02% 

7 CABO Beteiligungs GmbH 29.93% 7 CABO Beteiligungs GmbH 28.01% 

1 

3 

2


covered by net profit. If the minimum dividend for a financial year is not paid or is not paid 

in full, the arrears must be paid out of net profit in subsequent financial years. 

Oberbank AG, Linz, holds 19.73 per cent of the voting rights in BKS Bank AG. Bank für Tirol 

und Vorarlberg AG, Innsbruck, holds 19.84 per cent. Generali 3 Banken Holding AG, Vienna, 

holds 7.95 per cent of the ordinary no-par shares. These three core shareholders have concluded 

a syndicate agreement; together, they own 47.52 per cent of the voting rights. The 

syndication of the company’s stock reinforces BKS Bank’s independence and unites the 

syndicate partners’ interests within the scope of a cooperation and sales partnership. The 

syndicate agreement consists essentially of arrangements regarding the joint exercise of 

voting rights at general meetings and the syndicate partners’ mutual rights of first refusal. 

BKS Bank AG’s biggest single shareholder is CABO Beteiligungsgesellschaft mbH, Vienna, 

which is a wholly-owned subsidiary within the UniCredit Bank Austria AG Group, UniCredit 

Bank Austria AG holding a direct stake of 7.36 per cent. In June 2008, BKS Bank AG publicly 

announced UniCredit’s intention to sell its investments in the listed Austrian regional banks 

BKS Bank AG, Oberbank AG and BTV AG and to find purchasers for its shares. BKS Bank 

was involved in the selling process. However, following an evaluation phase lasting several 

months, UniCredit informed the Management Board of BKS Bank AG at the beginning of 

December that the sale of the shares had been suspended because of adverse capital market 

conditions. UniCredit thus still holds the same indirect stake of 37.29 per cent of the voting 

rights in BKS Bank AG as before. We must stress that the independence and autonomy of 

BKS Bank and the 3 Banken Group would not have been affected by any such change in the 

shareholder base. 

Wüstenrot Wohnungswirtschaft gem. reg. Genossenschaft mbH, Salzburg, owns another 2.99 

per cent. Roughly 12.20 per cent of the voting rights in BKS Bank AG are owned by free float 

shareholders. A substantial proportion of the free float is, in turn, held by BKS Bank staff and 

by investors who stand in a close relationship with BKS Bank. BKS-Belegschaftsbeteiligungsprivatstiftung 

— which exists exclusively to pass on in full to employees of BKS Bank investment 

earnings in accordance with § 10 Abs 1 KStG (Austrian corporation tax act) — controls 

roughly 0.24 per cent of the voting rights. At year-end, the held-for-trading portfolio of 

treasury shares consisted of 11,557 ordinary shares and 7,513 preference shares. 

Resolutions of the 69 th Annual General Meeting 

Roughly 90.6 per cent of the voting stock was represented at the 69 th Ordinary General 

Meeting (AGM) of BKS Bank AG held on 28 May 2008, as were 18.9 per cent of the preference 

stock and 23.3 per cent of the free float. The decisions to use net profit for the 

2007 financial year to distribute a dividend of €1.5 per share, to discharge the Management 

Board and Supervisory Board, to renew the appointments of Hermann Bell, Reinhard 

Iro and Wolf Klammerth for the maximum period permitted by the Memorandum and 

Articles of Association and to appoint KPMG Austria GmbH, Wirtschaftsprüfungs- und 

Our independence 

is assured by our 

balanced shareholder 

structure. 

UniCredit was 

considering selling its 

indirect stake in the 

3 Banken Group. 

29 

The employees’ stake in 

the enterprise’s success 

is a motivating force.

30 

Achieving sustainable 

growth in enterprise 

value is the creed 

underlying BKS Bank’s 

dividend policy. 

3.00 

3.05 


Steuerberatungsgesellschaft, Zweigniederlassung Klagenfurt, as Bank Auditors for the 2009 

financial year, were unanimous. Changes to the Memorandum and Articles of Association 

regarding, among other things, the procedure for publishing Company publications, exclusion 

of the right to have individual shares evidenced by paper certificates and the way in 

which decisions are to be made at Supervisory Board meetings, were approved by a majority 

of votes. Finally, the AGM unanimously authorized the Company to acquire its own shares 

in the period up to and including 28 November 2010 and in an amount of up to 5 per cent of 

its capital stock for securities trading purposes in accordance with § 65 Abs. 1 Z 7 AktG. 

Profit Appropriation Proposal 

BKS Bank’s strategy has always been to strive for sustainable growth in its enterprise 

value. In the pursuit of a dividends policy that is both consistent and in line with developments 

in the capital markets, we will be proposing to the AGM on 29 May 2009 that, 

regardless of lower consolidated profit for the 2008 financial year than for 2007, the same 

dividend as in the previous year, namely €1.5 per share, should be distributed, resulting in 

a total of distribution of approximately €7.02 million. 

SHARE PERFORMANCE AND DIVIDENDS SINCE OUR IPO IN 1986 

4.20 

3.90 

3.60 

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 

number of ordinary BKS no-par shares and BKS no-par preference shares, millions 

Dividend distribution, €m 

1 Proposal to the AGM on 29 May 2009. 

0.30 

4.38 

7.02 1


BASIC InFOrMATIOn ABOUT BKS BAnK’S SHArES 

2008 2007 2006 

Ordinary no-par shares in issue 4,380,000 4,380,000 4,380,000 

No-par preference shares in issue 300,000 300,000 300,000 

Closing price: ordinary/preference share, € 110.0/92.0 113.5/100.0 96.90/73.62 

High: ordinary/preference share, € 113.5/101.0 125.0/110.0 97.50/74.00 

Low: ordinary/preference share, € 110.0/92.0 97.0/73.6 95.90/72.00 

Market capitalization, €m 1 509.4 527.1 446.5 

IFRS earnings per share in issue, € 9.09 11.06 8.44 

Dividend per share, € 1.50 2 1.50 1.50 

P/E ratio: ordinary/preference share 1 12.28/10.27 10.46/9.22 11.62/8.83 

Dividend yield: ordinary/preference share, % 1 1.36/1.63 1.32/1.50 1.55/2.03 

1 At year-end. 2 Recommendation to the 70 th AGM. 

2009 FINANCIAL CALENDAR 

Date 

Annual Financial Statements for 2008 

Press conference 

Publication of the Annual Financial Statements for 2008 in the Internet 

1 April 2009 

and in the official Wiener Zeitung gazette 2 April 2009 

70th Annual General Meeting (AGM) 29 May 2009 

Ex-dividend date 2 June 2009 

Dividend payment date 5 June 2009 

Interim Report as at and for the 3 months ended 31 March 2009 22 May 2009 

Interim Report as at and for the 6 months ended 30 June 2009 21 August 2009 

Interim Report as at and for the 9 months ended 30 September 2009 20 November 2009 

INVESTOr rELATIOnS 

IR contact: 

Herbert Titze; Phone: +43-463-5858-120; e-mail: investor.relations@bks.at 

Internet: 

www.bks.at; www.businessclub.at 

Ticker symbols: 

BKS BAnK AG ST; BKS BAnK AG VZ 

reuters: KAEr.VI; KAEr_b.VI; Bloomberg: BKUS AV; BKUSn AV 

International Securities Identification Numbers (ISINs) 

ISIn (ordinary share): AT0000624705 

ISIn (preference share): AT0000624739 

Information about the Disclosure Directive is provided on the Bank’s website at www.bks.at 

in the section on Investor Relations. 

31

32 

Group 

ageme 

Repor

Mannt 

t 

The economic environment 

Notes on the scope of consolidation 

Results of operations 

Assets, liabilities, financial position 

Own funds 

Activities abroad 

Segment Report 

Risk Report 

Organization und IT 

Staff Report 

Communication 

Sustainability Report 

Outlook for 2009 

34 

40 

44 

49 

52 

54 

57 

72 

78 

81 

84 

87 

90 

33

34 

The worst economic 

crisis in decades. No 

region is spared. 

The US economy drifts 

into recession. 

THE GLOBAL ECOnOMY 

5.0 

1.2 

(1.3) 

2.0 


The economic environment 

Massive downturn in the global economy 

The stubborn crisis in the international financial markets that began with the collapse of 

the subprime mortgage market in the United States in 2007 drove the world economy into 

an abrupt downturn during 2008, ending several years of global boom. From the summer 

of 2008, fears of a global economic crisis were stoked by tension in the financial markets 

after the price bubbles in property markets burst as well as by a sharp drop in raw material 

and agricultural product prices (some of which had been inflated by speculation) and 

highly volatile foreign exchange rates. Initially, the shock waves emanating from the US 

banking sector mainly hit the American and European financial markets, but their knockon 

effect on the real economies of the major industrial regions of North America, Western 

Europe and Japan followed surprisingly quickly. In addition, hopes that the emerging 

economies in Asia and Central and Eastern Europe might be spared the effects of the 

impending recession in the industrial countries were dashed. 

Helped by high net exports and the introduction of tax credits to stimulate private consumption, 

the United States still achieved positive rates of GDP growth of between 2.1 and 

2.5 per cent into the second quarter of 2008. However, the situation worsened in the wake 

of a rapid drop in the value of mortgages, massive price losses on the stock markets and 

the near collapse of the banking system, and the job market was particularly hard hit. Over 

the year, the jobless rate shot up by 140 basis points to more than 6 per cent. GDP growth 

in 2008 as a whole weakened to 1.3 per cent as a result of the credit squeeze, perceptible 

cuts in spending by both private households and the corporate sector and additional 

problems in the financial markets (credit card debt) and the real economy (construction 

and automotive industries). According to analyses by the National Bureau of Economic 

research, the US economy had already drifted into a recession as it is typically defined in 

December 2007. 

1.3 

(1.7) 

2.6 

1.0 

(1.2) 

Change in real GDP versus the previous year, % 

Sources: WIFO, OECD. 

2007 2008 2009 (forecast) 

OECD USA Eurozone Germany 

Austria 

2.5 

1.3 

(1.2) 

3.1 

1.8 

(0.5) 

(0.4) 

Italy 

4.8 

Slovenia 

1.4 

Hungary 

7.3 

Slovakia


After Lehman Brothers — a US investment bank specializing in trade in credit derivatives 

and swap market products — had made its spectacular application for Chapter 11 bankruptcy 

protection under US law and in the wake of unnerving reports about the liquidity 

position of the world’s second-largest insurer, the American International Group (AIG), 

Europe too found itself joining the United States at the centre of the financial and economic 

crisis. The withdrawal of large amounts from money market funds and the breakdown of 

confidence between banks triggered the collapse of the interbank market. Banks’ resulting 

liquidity bottlenecks made them increasingly restrictive when it came to granting new 

loans. Only massive government support or nationalization could stabilize a number of 

large, exposed finance houses with yawning funding gaps, including the Dutch and Belgian 

financial group Fortis, the Franco-Belgian banking group Dexia and Germany’s Kreditinstitut 

Hypo Real Estate. Indeed, Iceland’s government felt compelled to nationalize the country’s 

three most important banks — Kaupthing, Landsbanki and Glitnir — when they became 

illiquid. The republic of Austria fully nationalized Kommunalkredit Austria AG. 

The decline in investment in fixed assets, weak consumer demand, a sharp drop in property 

prices in Ireland and Spain and flagging exports pulled the eurozone too into its first 

recession in the 10 th year of its existence. The job market also weakened by the minute, 

gradually increasing the jobless rate by 0.3 percentage points to 7.7 per cent over the 

year. On the other hand, the weakened domestic economy and a sharp drop in raw material 

prices from mid-year slowed inflation to 3.3 per cent. According to EU Commission 

estimates, the eurozone’s full-year real GDP growth slowed to 1.0 per cent, having come 

to 2.6 per cent in 2007. 

OVErVIEW OF nATIOnAL ACTIOn TAKEn TO COMBAT THE FInAnCIAL CrISIS (TAKInG AUSTrIA AS An EXAMPLE) 

Government Guarantees for Borrowing by Banks State Ownership of Banks Deposit Guarantees 

Government-guaranteed Oesterreichische Clearingbank AG 

(OeCAG) acts as a liquidity linchpin in the Austrian interbank 

market. In addition, the government furnishes individual 

guarantees for bond issuances by Austrian banks at a price 

in line with the market (maximum maturity of 5 years). 

Regulated by the Interbankmarktstärkungsgesetz 

(IBSG: Austrian interbank market reinforcement act) 

Total of up to €75 billion. 

Because the preservation of economic 

stability is in the public interest, the 

government has been authorized to acquire 

stakes in banks. 

Regulated by the Finanzmarkt stabili tätsgesetz 

(FinStaG: Austrian financial markets 

stability act) 

Total of €15 billion. 

An escalating, global 

domino effect 

following the collapse 

of investment bank 

Lehman Brothers. 

A surprisingly severe 

economic slump in the 

eurozone. 

Unlimited until the 

end of 2009, then up 

to €100 thousand per 

depositor and bank. 

35

36 

The eurozone: an 

extensive package 

of monetary and 

economic policy 

measures to cope 

with the financial and 

economic crisis. 

Declining exports 

and industrial output, 

modest consumer 

demand. 

A weakening labour 

market. 

The new EU Member 

States’ economic 

growth slows. 


The EU economy has yet to bottom out. However, the European Monetary Union — which 

grew to 16 members when Slovakia joined the euro on 1 January 2009 — has to date been 

able to keep the effects of the financial crisis on growth and jobs within relatively acceptable 

limits. For instance, the ECB made substantial funds available through its tender procedure 

and cut its key rate in several steps during the year under review, taking it from a 

high of 4.25 per cent down to as low as 2.5 per cent, and on 15 January 2009, this interest 

rate on the main refinancing operations of the euro system was cut by another 50 basis 

points to 2 per cent. In addition, action was taken to reduce the systemic risks associated 

with the threatened collapse of a number of banks in close teamwork with the affected 

EU Member States. At the same time, economic policy-makers introduced extensive 

national economic stimulus programmes within the scope of the €200 billion European 

Economic recovery Plan. BKS Bank has an indirect stake of 0.96 per cent in Oesterreichische 

Clearingbank AG (OeCAG), which was set up within the scope of the Bundesgesetz zur 

Stärkung des Interbankmarktes (Austrian federal interbank market support act). 

The economic slump hits Austria 

Because growth was still brisk in the first half, the Austrian economy registered real fullyear 

GDP growth of 1.8 per cent in 2008. Austrian exporters being comparatively competitive, 

growth was driven mainly by direct investment and by goods exports, which 

increased by 3.6 per cent in real terms during the year under review. However, there has 

recently been a sharp drop in order levels, especially in the goods industry. Together with 

pessimism about the business outlook, this suggests that 2009 will be economically very 

difficult. Private consumption, normally the principal pillar of the economy in the mature 

phase of the economic cycle, failed to provide any significant stimulus in 2008 or in prior 

periods. The saving rate, still high at 11.8 per cent, and the increased burden on household 

incomes caused by the high rates of inflation that persisted until mid-year, were responsible 

in equal measure for this phenomenon. Inflation increased to 3.2 per cent in 2008 

as a whole, mostly as a result of imported inflation. However, having peaked in July, it flattened 

off from 3.8 to 3.1 per cent in October as the rise in raw material prices eased. The 

rise in food prices also slowed. 

When one looks at job offers and the rate of growth of the number of jobholders, which 

has fallen significantly since June, the economic slump also appears to have spread to the 

job market. The jobless rate in Austria (Eurostat figure, expressed as a percentage of the 

working population) was still 3.5 per cent in 2008, but given the time lag in job market 

responses, it is likely to rise to 3.9 per cent in 2009, when the number of registered jobless 

people will probably increase by about 27,000 to roughly 237,000. 

Because of the region’s close trading links with the eurozone and its high external funding 

needs, growth in Central and Eastern Europe also slowed. Nonetheless, some CEECs registered 

GDP growth of 3 per cent or even significantly more. Having recorded growth of 6 

per cent in 2007, the new EU Member States registered an average real rate of GDP growth


10 

0 

-10 

-20 

-30 

of 4.8 per cent in 2008. Whereas Slovenia and Slovakia were able to exploit the economic 

tailwind they received from joining the euro, Hungary, Estonia and Latvia in particular suffered 

severe declines in industrial and consumer confidence and economic activity following 

substantial depreciation of their currencies (the forint, Estonian crown and lat). 

The euro comes under downward pressure 

In the currency markets, the rate of exchange of the euro against the US dollar — a crucial 

determinant of European competitiveness — was another reflection of the economic 

gradient between the two sides of the Atlantic. Euro exchange rates depended mainly 

on monetary policy action and interest rate adjustments by the Fed and the ECB. The 

euro began the year at US$1.4688 and moved in a range of between US$1.5990 (15 July 

2008) and US$1.2525 (13 November 2008) to stabilize at US$1.3917 by year-end. After 

trading at ¥163.83 at the beginning of the year, the worsening economic outlook in Japan 

gradually took the euro up to ¥169.75 between March and July. As Europe’s economic 

horizon darkened from August, the repatriation of highly speculative carry trades drove 

a countermovement that continued until the end of October, when the euro was trading 

at ¥115.75. The upshot was an end-of-year euro exchange rate of ¥126.14. The Swiss franc 

strengthened perceptibly against the euro during the year under review as hefty swings 

in the rate of exchange took the euro from SFr1.6529 to a low of SFr1.4438 (27 October 

2008), reaffirming the Swiss franc’s role as a safe haven in times of crisis. The rate 

of exchange at the end of the year — SFr1.485/€ — was an indication of the Swiss franc’s 

long-term upward trend. 

MOVEMEnTS In KEY EXCHAnGE rATES, % Source: OenB. 

Parity 

Q1 2008 Q2 2008 Q3 2008 Q4 2008 

US$/€ ¥/€ SFr/€ 

Fears of recession 

stoke volatility in the 

currency markets. 

37

38 

The economic slump 

also depresses demand 

in the raw material 

markets. Prices remain 

under pressure. 

Tougher conditions 

in Austria’s financial 

sector. 


160 

140 

120 

100 

80 

60 

40 

20 

Sharp corrections in the raw material markets 

As the capital markets grew increasingly volatile, the many-year boom in the raw material 

markets, having been detached from the fundamentals, came to a standstill. Profit-conscious 

investors’ quest for alternative investments was greatly intensified by the increased 

flow of capital into the raw material markets as well as the importance and ample supply 

of the associated derivatives. Raw materials, including above all the heavyweight, crude 

oil, developed into a separate, alternative asset class with a conspicuous dynamic all its 

own. After being given wings by the economic catch-up process in the emerging markets, 

crude oil prices in particular reached unprecedented highs. By the middle of July, 

the reference price of the world’s most important benchmark crude oil — West Texas 

Intermediate (WTI) — had risen to nearly US$150 a barrel. Other commodities such as 

precious metals, above all gold, and industrial and agricultural raw materials also increased 

significantly in price. However, the deteriorating economic outlook, a significant drop in 

demand and, not least, the withdrawal of financial investors from the raw material markets 

led to a persistent slump in crude oil, industrial and precious metal prices. Despite the cut 

in production announced by the OPEC, the American WTI oil price had fallen to US$44.60 

a barrel by year-end. The price of north Sea benchmark Brent fell to the equivalent of 

€32.68 a barrel. 

Major challenges for the Austrian financial sector 

The accumulated, non-consolidated assets of Austria’s banks as registered by OeNB had 

already passed the €1 billion mark by the end of September 2008. It is only at second 

glance that the comparatively robust increases in receivables from customers and customer 

deposit balances during the year reveal the impact that the turmoil in the international 

financial markets had on the Austrian banking and insurance sector. Since the 

outbreak of the US subprime crisis in the summer of 2007 and the massive distortions that 

followed, especially in the third quarter, Austrian banks too have seen themselves faced 

CrUDE OIL PrICES AnD THE MSCI WOrLD InDEX 

Source: Bloomberg. 

Q1 2008 Q2 2008 Q3 2008 Q4 2008 

Crude Oil Spot Price WTI Cushing, US$ Brent Crude Oil, € MSCI World, €


6% 

5% 

4% 

3% 

2% 

1% 

0 

with sometimes serious problems in the trading, fee and commission and loan impairment 

fields and in their proprietary securities portfolios. The crisis of confidence dried up the 

usual sources of funds in the interbank market. As a result, the rate spread between the 

3-month money segment — the basis for interbank lending — and the EOnIA overnight 

rate hit peaks of up to 156 basis points, most noticeably after efforts to save the investment 

bank Lehman Brothers had failed. This greatly increased Austrian banks’ funding costs, 

making them more cautious when lending to companies and private households. In the 

light of the euro’s depreciation against the Swiss franc from September, widening credit 

spreads and the slump-induced volatility of the securities and currency markets focused 

attention on the serious risks associated with foreign currency loans, including above all 

loans combined with repayment vehicles. 

Apart from a few banks that felt compelled to take shelter under the government umbrella 

created by the Interbankmarktstärkungsgesetz and the Finanzmarktstabilitätsgesetz, Austria’s 

banks have, to date, been able to compensate for most of the accumulated stress 

caused by the crisis on the basis of their current earnings. However, their comparatively 

good profit track record over recent years has been dented somewhat by the turmoil in 

the financial markets and by their sizeable exposures in Central, Eastern and Southeastern 

Europe. Following a record profit of €4.76 billion in 2007, their full-year profit in 2008 is 

estimated to be down about 19 per cent to roughly €3.8 billion. 

Based on provisional OeNB figures, the rates of growth of BKS Bank’s direct lending to 

non-banks and so-called primary deposit balances, both of which were above the national 

average, slightly increased its respective market shares to roughly 1.0 per cent and 0.8 per 

cent. 

3-MOnTH EUrIBOr AnD 

EOnIA OVErnIGHT rATE 

Q1 2008 

Q2 2008 

Q3 2008 

Q4 2008 

3-month Euribor EONIA overnight rate 

Spread 

1000 

800 

600 

400 

200 

0 

AUSTrIAn BAnKS: 

KEY LInE ITEMS On THE BALAnCE SHEET 

2004 

2005 

2006 

The indirect impact of 

turmoil in the financial 

markets on banks’ 

profits. 

Although their 

profitability remains 

good by historical 

standards, the profits 

of Austrian banks are 

affected. 

Source: OenB. Source: OenB. 

2007 

2008 

Assets Direct lending to non-banks Primary deposit balances 

€bn 

39

40 

BKS Bank has been 

preparing its financial 

statements in 

accordance with IFRSs 

since 2005. 

The BKS Bank Group 

includes 15 subsidiaries 

and entities accounted 

for using the equity 

method. 


Notes on the 

scope of consolidation 

BKS Bank has been preparing its accounts in accordance with the principles of the International 

Financial Repor ting Standards since 2005, and it also prepared these Consolidated 

Financial Statements in accordance with IFRSs as adopted by the EU. 

Consolidated entities 

The overview that follows lists the companies required by the International Financial 

Reporting Standards to be classified as members of the BKS Bank Group in the 2008 

financial year. The superordinate entity within the BKS Bank Group is BKS Bank AG, which 

also dominates the Group’s accounts. During the year under review, the number of subsidiaries 

within the BKS Group was increased by the addition of BKS Hybrid alpha GmbH, 

which was set up in September 2008 to issue hybrid bonds. 

COnSOLIDATED BAnKS AnD OTHEr FInAnCIAL SErVICE PrOVIDErS 1 

BKS Bank AG, Klagenfurt 

BKS-Leasing Gesellschaft m.b.H., Klagenfurt 

BKS-Immobilienleasing Gesellschaft m.b.H., Klagenfurt 

BKS-leasing d.o.o., Ljubljana 

BKS-leasing Croatia d.o.o., Zagreb 

BKS Bank d.d., Rijeka 

BKS-Leasing a.s., Bratislava2 2 BKS-Leasing a.s. makes up a subgroup together with BKS-Finance s.r.o. 

BAnKS AnD OTHEr FInAnCIAL SErVICE PrOVIDErS ACCOUnTED FOr USInG THE 

EqUITY METHOD 1 

Oberbank AG, Linz 

Bank für Tirol und Vorarlberg AG, Innsbruck 

Alpenländische Garantie-Gesellschaft m.b.H., Linz 

Drei-Banken Versicherungs-AG, Linz 

OTHEr COnSOLIDATED EnTITIES 1 

BKS Zentrale-Errichtungs- u. Vermietungsgesellschaft m.b.H., Klagenfurt 

IEV Immobilien GmbH, Klagenfurt 

Immobilien Errichtungs- u. Vermietungsgesellschaft m.b.H. & Co. KG, Klagenfurt 

BKS Hybrid alpha GmbH, Klagenfurt 

1 Additional numbers for the companies listed above can be found in the section entitled Notes to the 

Consolidated Financial Statements of BKS Bank, in note 42 on page 116. 

The consolidated members of the BKS Bank Group thus included the banks and other 

financial service providers and entities rendering banking-related services that were controlled 

by BKS Bank AG. Minority interests in profit for the year were deducted when 

calculating consolidated net profit. The other material equity investments of BKS Bank AG


where stakes of over 20 per cent were held were recognized in the Consolidated Income 

Statement in the amount of the enterprise’s interest in the respective entity’s profit for 

the year. In other words, they were accounted for using the equity method. The carrying 

amount of an equity investment was adjusted on the basis of BKS Bank AG’s interest in 

the change in the net assets of the entity in question. 

BKS Bank AG held stakes of 16.95 and 13.59 per cent, respectively, in the Oberbank and 

BTV, and it owned 18.62 and 15.10 per cent, respectively, of the voting rights. The exercise 

of voting rights is regulated in syndicate agreements. This allows participation in these 

entities’ financial and business decisions within the scope of the 3 Banken Group without 

having control of them. In accordance with the mandatory standard IAS 28 Investments 

in Associates, these investments were accounted for in the Consolidated Financial Statements 

using the equity method even though those banks lacked the status of subsidiaries 

of BKS Bank AG and a stake of at least 20 per cent was not held. 

Banks and other financial service providers 

BKS Bank AG is the parent of the BKS Bank Group. It is headquartered in Klagenfurt. BKS 

Bank AG turned profit for the year before tax of €23.5 million, making a substantial contribution 

to consolidated profit in 2008. Assets of roughly €5.74 billion likewise underlined 

its dominant role within the Group. 

BKS-Leasing Gesellschaft m.b.H. is headquartered in Klagenfurt. It has been carrying on 

motor vehicle and movable property leasing business in BKS Bank’s core operating territories 

in Austria since 1988. It is a wholly owned subsidiary of BKS Bank AG with capital 

stock of €40.0 thousand. Together with BKS-Immobilienservice Gesellschaft m.b.H., it makes 

up a group as defined by the KStG (Austrian corporation tax act) under group parent BKS 

Bank AG. This company also provides the 11 employees and the back-office infrastructure 

used for the acquisition of leasing business and the management of leases. 

BKS-Immobilienleasing Gesellschaft m.b.H. was founded in 1989 and is headquartered in 

Klagenfurt. It handles all of BKS bank’s real estate leasing activities. It specializes in the 

acquisition, construction, renting, letting and management of real estate. 99.75 per cent 

of its capital stock of €40.0 thousand is held by BKS-Leasing Gesellschaft mbH. Immobilien 

Errichtungs- u. Vermietungsgesellschaft mbH & Co. KG, Klagenfurt, holds 0.25 per cent. 

Two additional, wholly owned leasing companies, BKS-leasing d.o.o., headquartered in 

Ljubljana, and BKS-leasing Croatia d.o.o., headquartered in Zagreb, take account of BKS 

Bank’s historically rooted business links with the so-called Alpe-Adria region. BKS-leasing 

d.o.o., which had capital stock of €260,000 at the end of the year under review, was acquired 

in 1998. The Group’s leasing subsidiary in Croatia, which has capital stock of HrK2.0 million, 

was set up in 2002. The business activities of these two companies focus primarily 

on motor vehicle, boat and movable property leasing. 

Oberbank AG and 

Bank für Tirol und 

Vorarlberg AG were 

accounted for in the 

Consolidated Financial 

Statements using the 

equity method. 

41

42 

Kvarner banka d.d. 

renamed as 

BKS Bank d.d. 


Having acquired a majority interest in the autumn of 2006, BKS Bank gradually increased 

its stake in Kvarner banka d.d., which is headquartered in Rijeka, to 99.8 per cent. Although 

it was renamed as BKS Bank d.d. in September 2008 to signal its membership of the BKS 

Bank Group, there are no plans to merge this bank, which remains a stock corporation, with 

BKS Bank AG. BKS Bank d.d. had an average of 45 employees in the year under review. Its 

assets grew to the equivalent of €60.5 million. 

BKS-Leasing a.s., formerly KOFIS-Leasing a.s., is headquartered in Bratislava and has a 

branch network centred on Žilina, Poprad, Košice und Banskà Bystrica. It had an average 

of 31 employees in 2008, when its capital stock was increased by €11.7 million to €15 million. 

In addition, its assets grew substantially to approximately €52.6 million. 

Alpenländische Garantie-Gesellschaft mbH, Linz (ALGAR), was set up as a bank in 1983. It 

is a 3 Banken Group joint venture. ALGAR is not profit-orientated. Its object is to guarantee 

the large loans of the three banks that are its equity holders. It does so by giving 

guarantees and assuming liability for loans and advances in other ways. Fifty per cent of 

its capital stock of roughly €1.8 million is held by the Oberbank, and 25 per cent stakes are 

held by BTV and BKS Bank. ALGAR was accounted for within the BKS Bank Group using 

the equity method. 

Oberbank AG was set up in 1869 under the name Bank für Oberösterreich und Salzburg. It 

is headquartered in Linz. It too is accounted for in the Consolidated Financial Statements 

of BKS Bank using the equity method. It is a leading independent provider of banking 

services to medium-sized enterprises in its core regional markets, namely Upper Austria 

and Salzburg. It has branches in Vienna, Lower Austria, Bavaria, the Czech Republic and 

Hungary as well as leasing offices in Slovakia. It had an average workforce of 1,983 during 

the year under review. It ended the year with consolidated assets of €15.31 billion and 

posted profit for the year before tax of €114.0 million, making it, once again, one of Austria’s 

most profitable banks in 2008. 

Bank für Tirol und Vorarlberg AG (BTV) was founded in 1904. It is established in its core 

markets in Tirol and Vorarlberg, in Western Austria. It is the third independent bank in 

the 3 Banken Group on an equal footing with Oberbank AG and BKS Bank. The workforce 

of 879 at BTV — which also operates in Vienna, Eastern Switzerland, Veneto, South Tyrol, 

Bavaria and Baden-Württemberg — was able to increase its consolidated assets to over 

€8.50 billion. The BTV Group recorded profit for the year before tax of €50.2 million. 

Insurer Drei-Banken Versicherungs-Aktiengesellschaft (3BV-AG), Linz, was set up in 

1988. It sells its own risk insurance products and the endowment and property insurance 

products of Generali Versicherung AG as an insurance agent. This long-standing ally of the 

3 Banken Group holds 20 per cent of 3BV-AG’s stock. The Oberbank holds a stake of 40 per 

cent in 3 BV-AG’s capital stock of €7.5 million. BTV and BKS Bank hold 20 per cent each.


Other consolidated companies 

BKS Zentrale-Errichtungs- u. Vermietungsgesellschaft m.b.H., Klagenfurt, built and now 

lets BKS Bank’s Head Office building on St. Veiter Ring. BKS Bank AG holds an indirect 

stake of 100 per cent in this company, which has capital stock of €36.4 thousand, via 

BKS-Leasing GmbH and VBG Verwaltungs- und Beteiligungs GmbH. 

Immobilien Errichtungs- u. Vermietungsgesellschaft m.b.H. & Co. KG acquires, lets and 

sells land and buildings and carries out construction projects of every kind. This subsidiary 

is primarily responsible for building and letting business premises within the BKS 

Bank Group. IEV Immobilien GmbH is responsible for its management and is liable as 

general partner. BKS Bank AG holds direct stakes of 100 per cent in these companies, 

both of which are headquartered in Klagenfurt. 

The principal object of BKS Hybrid alpha GmbH, Klagenfurt, which was set up in September 

2008, is to issue hybrid bonds and use the proceeds from such issuances to purchase the 

supplementary capital bonds of BKS Bank AG. Pursuant to the provisions of § 24 Abs 2 Z 6b 

BWG (Austrian banking act), the proceeds from the issuance of hybrid capital instruments 

are equity and thus qualify as Tier 1 capital at BKS Bank Kreditinstitutsgruppe. 

43

44 

BKS Bank holds its 

own well in a difficult 

banking year. 

BKS Bank achieves 

responsible growth 

in every key business 

segment. 


Results of operations 

2008 will be remembered as a difficult banking year, even if BKS Bank held its own very 

well in a challenging environment. The general picture remained satisfactory and free 

from surprises into the summer months, but both our balance sheet and our results were 

overshadowed by the escalation of the global financial crisis in the second half. Conditions 

in the credit and equity markets worsened dramatically. After the collapse of Lehman 

Brothers, profound mistrust within the interbank market reduced the amount of funds in 

the financial system available to the banking system to almost nothing. At the same time, 

investors’ flight from all high-return, risky asset classes accelerated, making it more expensive 

for companies in all rating categories to satisfy their ongoing financial needs. 

As for BKS Bank, 2008 as a whole was a good financial year. We achieved responsible 

growth in our key business segments and continued to register respectable results, posting 

consolidated net profit of €41.9 million. As a strong, firmly rooted financial institution, 

BKS Bank has been a beneficiary of its customers’ quest for security and quality, enabling 

it to ride out the crisis better than some of its rivals. Above all, lending operations thrived 

into the third quarter, and the inflow of so-called primary deposits was above average, 

resulting in a solid profit performance and substantial broadening of BKS Bank’s funding 

base. At year-end, it had a Tier 1 ratio of 6.9 per cent, compared with 5.8 per cent at the 

end of 2007. Its own funds ratio was also up on the previous year, having increased by 100 

basis points to 11.03 per cent. The return on equity before tax was a respectable 9.7 per 

cent, compared with 13.7 per cent in 2007. BKS Bank’s cost:income ratio — the mirror of 

our consistent self-discipline — was well below our medium-term benchmark of 55 per 

cent at 50.1 per cent. In addition, the marked increase in net interest income gave us a 

satisfactory risk:earnings ratio of 15.4 per cent. 

KEY LInE ITEMS In THE InCOME STATEMEnT 

€m 2008 2007 2006 

Net interest income 130.2 108.6 94.6 

Charge for impairment losses on loans and advances (20.0) (19.2) (20.0) 

Net fee and commission income 40.8 44.9 41.0 

Net trading income 1.4 1.8 1.1 

net income from financial assets (23.1) 4.2 2.3 

General administrative expenses (87.9) (82.8) (75.6) 

Profit for the year before tax 44.4 59.6 44.8 

Income tax (2.5) (8.8) (5.8) 

Consolidated net profit 41.9 50.8 39.0


Net interest income 

Despite the increasingly difficult market environment, we can be generally satisfied with 

our earnings performance. In particular, our net interest income before impairment losses 

on loans and advances developed well, exceeding the previous year’s figure by roughly 

one fifth at €130.2 million. Roughly two thirds of our interest earnings were in euros. Our 

thriving lending operations accounted for a substantial part of the €21.6 million increase 

in our net interest income, as did the contribution to net interest income made by the 

entities accounted for using the equity method — including above all the Oberbank and 

BTV — which increased by €14.3 million or 6.0 per cent. The earnings performance of 

our subsidiaries abroad was also remarkable. Despite the lending restrictions imposed by 

the Croatian national bank to curb the current account deficit, BKS Bank d.d., BKS-leasing 

Croatia d.o.o. and the Group subsidiaries in Slovenia and Slovakia — BKS-leasing d.o.o. and 

BKS-Leasing a.s. — contributed a total of roughly €6.2 million to net interest income. 

Our interest margin (net interest income before impairment losses on loans and advances 

expressed as a percentage of average assets) rose from 2.0 to 2.2 per cent. 

Impairment losses on loans and advances 

IFRSs require impairment losses on loans and advances to be deducted directly from net 

interest income. Against the backdrop of our borrower quality and risk-aware business 

growth, the charge for impairment losses on loans and advances came to just €20.0 million, 

compared with €19.2 million in 2007. 

This line item was thus only marginally up on 2007. It is the net balance of charges for 

impairment losses and reversals thereof, subsequent recoveries of written-off receivables, 

direct write-offs and commission payments to ALGAR, which is the 3 Banken subsidiary 

that guarantees large loans within the 3 Banken Group. Direct write-offs came to €1.2 million, 

compared with €1.6 million in 2007. Impairment allowances increased by 4.3 per cent 

to €24.0 million, while impairment reversals in the BKS Bank Group’s corporate and business 

and personal loan portfolios totalled €4.9 million. The impairment allowance balance 

came to 0.4 per cent of receivables outstanding inclusive of contingent exposures. 

IMPAIrMEnT LOSSES 

€m 2008 2007 2006 

Direct write-offs 1.2 1.6 1.3 

Impairment allowances 24.0 23.0 26.4 

Impairment reversals (4.9) (4.7) (6.8) 

Subsequent recoveries (0.4) (0.7) (0.9) 

Charge for impairment losses 20.0 19.2 20.0 

Growing loan 

portfolio and deposit 

balances. Net interest 

income grows by 

19.9 per cent. 

Despite the rise in 

business volumes, the 

charge for impairment 

losses on loans and 

advances increased 

only marginally. 

45

46 

A difficult market 

environment and 

plummeting securities 

turnover cut into 

earnings from services. 


Net fee and commission income 

The permanent change in the mood of the international financial markets reduced BKS 

Bank’s net fee and commission income — which had accounted for roughly one third of 

its total earnings in prior years — by 9.0 per cent on the year to €40.8 million. Fee and 

commission earnings from securities operations dropped by about one third, and earnings 

from custody operations slumped, but because of increased volumes, fee and commission 

earnings from lending operations and payment services increased. In the securities segment, 

the worsening crisis in the equity and financial markets in the second half was also 

mirrored by falling asset values in our customers’ securities accounts, which were worth 

€4.79 billion at year-end. This was considerably less than the value of €6.28 billion recorded 

at the end of 2007. 

Net trading income 

Among other things, net trading income comprises earnings from securities trading, from 

foreign exchange trading and from trading in price and interest rate derivatives. Although 

we were able to grasp profit opportunities with the help of interest rate and currency transactions, 

especially in the first half, we can — given the distortions in the financial markets — 

be content with our full-year net trading income of €1.4 million, even if it was roughly one 

fifth down on our good 2007 figure of €1.8 million. 

InTErVIEW WITH HUBErT CUDEr, HEAD OF COnTrOLLInG 

Based on the Group’s numbers, it is clear that BKS Bank managed to get through a 2008 banking 

year that was remarkable in every respect without suffering any major damage. In your view, 

what were the biggest challenges? 

In terms of workload, the implementation of the new capital requirements created by 

Basel II was one of our biggest projects. Carrying out the necessary changes to our IT 

systems was particularly challenging. 

However, the period immediately following the insolvency of investment bank Lehman 

Brothers in the middle of September was, in the truest sense of the word, breathtaking. The 

US Treasury Department’s decision to leave America’s fourth-largest investment bank 

to its fate — as a supposedly calculable risk — set off a global chain reaction that nearly 

led to the collapse of the international financial system. Nothing looked safe any more, 

be it credit lines between banks, investments in money market funds or balances in savings 

accounts. Although our crisis-tested Aktiv-Passiv-Management (ALM: Asset Liability 

Management) Committee took prompt action to counteract the force of the impending 

slump, it was of course distressing to experience at first hand the almost incomprehensible, 

unprecedented drop in the prices of securities, including prime securities.


60 

50 

40 

30 

20 

10 

0 

Net income from financial assets 

Our net income from financial assets, comprising net income from assets requiring designation 

as at fair value through profit or loss (FV) or classification as available for sale (AfS) or 

held to maturity (HtM) pursuant to IFRS 7, was a particularly clear reflection of the direct 

and indirect effects of the escalating financial market crisis on BKS Bank. In the downward 

spiral of market corrections, distress sales and relentless price losses that set in towards 

the end of the third quarter, market values in virtually every asset class plummeted into an 

abyss. In a number of market segments, trade ceased altogether, and the currency markets 

reacted with abrupt and volatile trend reversals. We carried out corresponding mark-tomarket 

adjustments of €16.1 million in the securities portfolio, €0.7 million in the equity 

investment portfolio and €4.8 million in the derivatives portfolio. Direct asset sales produced 

a loss of €1.2 million, and we recognized a further €0.3 million of revaluation losses 

as a result of using the fair value option. Consequently, we were able to limit our loss on 

financial assets to €23.1 million. 

General administrative expenses 

We kept a tight grip on costs during the crisis year under review. They therefore increased 

by only 6.1 per cent, which was much less than the sustainable, 11.4 per cent increase in 

our earnings. General administrative expenses thus came to €87.9 million in 2008, compared 

with €82.8 million the year before. Despite a larger workforce, staff costs within this 

total were only marginally above the 2007 figure of €56.0 million at €59.2 million. Besides 

the regular pay rises that take place under collective agreements, the increase was largely 

due to the requisite changes in so-called social capital, including above all an increase in the 

provision for post-employment benefits as a result of using new mortality tables. Groupwide, 

the average workforce grew by 57 to 860 (full year equivalents). Most of the increase 

in the workforce was caused by the expansion of our market presence. At the end of 2008, 

we were already employing 118 people in our foreign markets. 

COnSOLIDATED nET PrOFIT 

21.5 

2004 

29.6 

39.0 

50.8 

2006 

2005 2007 

41.9 

2008 

€m 

60% 

50% 

40% 

30% 

20% 

10% 

0 

2004 

ROE before tax 

2005 

The uncontrollable 

financial markets crisis 

leads to impairment 

losses in securities 

portfolios. 

Stable costs are an 

important profit 

pillar, reducing our 

cost:income ratio to 


KEY PErFOrMAnCE InDICATOrS 

2006 

2007 

2008 

Cost:income ratio risk:earnings ratio 

47

48 

BKS Bank AG’s net 

profit will allow the 

same dividend of 

€1.5 per share as for 

the previous year. 

Our performance 

indicators demonstrate 

how crisis-proof our 

business model is. 


Despite all our efforts to cut costs, organic growth and the boom in investment that continued 

to be felt during the year under review increased other administrative costs by 7.2 per 

cent to €22.7 million. This figure reflects sizeable outlay on market expansion in the form 

of increased rental costs, IT and consultancy costs and other administrative expenditure 

in connection with our day-to-day business operations and special projects carried out 

during the year under review. In addition, construction and infrastructure investments 

increased depreciation by 6.1 per cent to €6.0 million. 

The BKS Bank Group’s outlay on income tax and other taxes was down on 2007. This was 

mainly due to the 71.2 per cent fall in profit for the year before tax to €2.5 million. The balance 

of deferred taxes was negative €0.5 million. The effective tax rate of 5.7 per cent in 

the period under review was much lower than the prior-year rate of 14.8 per cent. 

Profit for the year 

Taking account of all these items of income and expense, BKS Bank’s consolidated net 

profit came to €41.9 million. This was 17.4 per cent down on 2007 because, above all, 

of the indirect effects of the financial markets crisis. In the end, BKS Bank too was not 

immune. 


Distributable profit is determined on the basis of the annual financial statements of Group 

parent BKS Bank AG. This company posted profit for the financial year from 1 January 

through 31 December 2008 of €20.9 million, as against €22.3 million in 2007. €14.1 million 

of this profit was transferred to retained earnings. Allowing for a profit carryforward 

of €0.4 million, BKS Bank AG posted net profit of €7.3 million. We will be recommending 

to the 70 th AGM on 29 May 2009 that this profit should be used to distribute the same 

dividend as for the previous year, that is €1.50 per ordinary and preference share, and that 

the remainder, €0.3 million, should be carried forward to a new account. In all, there are 

4,680,000 entitled ordinary and preference shares in issue, so €7.02 million would again be 

distributed to our equity holders. This translates into a dividend ratio of 33.5 per cent. 

PErFOrMAnCE InDICATOrS 

2008 2007 2006 

rOE before tax (profit for the year in % of average equity) 9.7% 13.7% 11.2% 

ROE after tax 9.2% 11.7% 9.7% 

rOA after tax (profit for the year in % of average assets) 0.7% 0.9% 0.8% 

Cost:income ratio 50.1% 52.6% 54.7% 

risk:earnings ratio (credit risk in % of net interest income) 15.4% 17.7% 21.2% 

Credit risk in % of customer receivables 0.4% 0.5% 0.6% 

IFRS earnings per share in issue, € 9.10 11.06 8.44


As we have already described, the key performance indicators and steering benchmarks 

demonstrated the long-term effectiveness of the comparatively conservative business 

model to which we are committed, especially in times of crisis. Our solid, responsible 

growth continued in 2008. 

Assets, liabilities, financial position 

The BKS Bank Group’s assets grew by 3.9 per cent to €5.98 billion. The Bank’s lending 

operations were the principal motor of this growth, expanding solidly into the fourth quarter. 

On the equity and liabilities side of the Balance Sheet, there was a strong inflow of 

so-called primary deposits, including in particular savings deposits, as the worsening slump 

encouraged investors to shift more of their portfolios out of securities investments and 

into classical, low-risk bank deposits. In addition, the money market ceased to function in 

mid-September, causing a sharp decrease in interbank turnover. As a result, BKS Bank’s 

consolidated assets also shrank. Having totalled over €6.40 billion at the end of September, 

they fell just short of the €6 billion mark at year-end. 

Balance sheet assets 

Growth on the assets side of the Balance Sheet was again driven by a disproportionately 

large, Group-wide increase in receivables from corporate and business banking and retail 

customers, boosting the Group’s assets by 17.1 per cent to €4.28 billion. In particular, while 

expanding its loan portfolio by €639.3 million to €4.21 billion, our parent BKS Bank AG was 

able to acquire numerous creditworthy new customers for the Group. Our cross-border 

finance services into Croatia also proved robust, and our Slovenian branches in Ljubljana and 

Maribor too made a big contribution to the pleasing overall picture as their aggregate loan 

portfolio grew to roughly €380 million. In addition, BKS Bank d.d. in Croatia and our leasing 

subsidiaries in Austria and abroad also made a substantial contribution to our growth. 

Broken down into customer segments, corporate and business banking customers accounted 

for €3.42 billion or about four fifths of the loan portfolio and retail customers for roughly 

€865 million thereof. Despite the loan portfolio’s strong growth, it proved possible to keep 

the impairment allowance balance static on the previous year at €96.2 million. Roughly 92 

per cent of this total was attributable to BKS Bank AG’s business activities. 

Most of the increase in receivables from customers was accounted for by loans and 

advances in euros. At year-end, the foreign currency loan portfolio, consisting mostly of 

Swiss franc loans, totalled about €965 million. The proportion of foreign currency loans 

in relation to total loans in the portfolio remained unchanged versus year-end 2007 at 

22.5 per cent. In view of the troubled state of the financial and currency markets, at the 

beginning of October, we asked our decision-makers in sales to stop acquiring new foreign 

currency business. This request was reinforced by a circular sent to Austria’s banks 

Responsible asset 

growth to roughly €6 

billion. 

The loan portfolio 

grows by a strong 


Adverse movements 

in the SFr/€ exchange 

rate and appeals by 

the FMA lead to the 

reorientation of our 

foreign currency 

lending activities. 

49

50 

A frosty climate in the 

interbank market. 

Tried-and-tested ALM 

procedures in periods 

of high volatility in the 

financial markets. 

by the Financial Market Authority on 10 October. In addition, given the overall picture, 

we actively recommended that customers with repayment vehicle loans should consider 

switching to repayment-based loans. 

The massive cool-off in the interbank market was reflected by a marked drop in receivables 

from other banks. Having begun the year at €880.4 million and peaked at €938.2 

million in September, they fell by 53.9 per cent over the year as a whole to end it at €406.1 

million. On the equity and liabilities side of the equation, the steady inflow of primary 

deposits meant that the corresponding payables to other banks increased only slightly, by 

1.4 per cent, to €1.42 billion. 

At year-end, the financial assets presented in detail in Notes 16 through 19 totalled €1.16 

billion, having grown by 7.5 per cent during 2008. Financial assets designated as at fair 

value through profit or loss increased by €55.8 million to €127.5 million. We hedged these 

assets against market price fluctuations using the fair value option within the scope of 

the Asset Liability Management (ALM) process. The portfolio of available-for-sale (AfS) 

assets shrank by €54.1 million to €344.0 million. This was due to impairments caused by 

falling prices in the financial markets that affected the balance of gains and losses taken to 

equity and, in the Income Statement, net income from AfS financial assets. For risk reasons, 

we also carried out targeted disinvestments in financial assets with a market value of 

€26.8 million in the fourth quarter. Finally, purchases of fixed-interest securities increased 

the held-to-maturity (HtM) portfolio by €74.9 million to €460.1 million. Investments in 

KEY LInE ITEMS On THE COnSOLIDATED BALAnCE SHEET 

Receivables from other banks 

Receivables from customers 

Financial assets 

Investments in entities accounted for using the equity method 

Cash and balances at the central bank 


Payables to other banks 

Savings deposits 

Sight and time deposits 

Liabilities evidenced by paper and subordinated 

debt capital 

5 4 3 2 1 0 0 1 2 3 4 5 

2008 

2007 €bn 

Equity


entities accounted for using the equity method came to €231.9 million. This line item 

consists primarily of investments in our sister banks Oberbank und Bank für Tirol und 

Vorarlberg AG. 

Other assets were 16.2 per cent down on the end of the previous year to €23.7 million. 

This was caused by the falling market values of interest rate and capital market swaps 

used mainly for hedging purposes. Negative fair values are presented in the line item 

Other liabilities. 

Because we reduced our credit balance with OeNB, the line item Cash and balances at the 

central bank fell by 14.3 per cent to €69.2 million. This line item comprises the cash and cash 

equivalents presented in detail in the Cash Flow Statement in the Notes on page 99. Our 

remaining balance sheet assets consisted of trading assets, property and equipment, intangible 

assets and — recognized as separate line items on the Balance Sheet — deferred tax 

assets and investment property. Among other things, Trading assets includes the derivative 

financial instruments in the trading book measured at fair value. Among other things, 

Intangible assets includes the goodwill of BKS Bank d.d. in Croatia and BKS-Leasing a.s. in 

Slovakia. 

Balance sheet equity and liabilities 

The BKS Bank Group continued to fund itself mainly through so-called primary deposits during 

the year under review. These comprise deposits from customers, liabilities evidenced by 

paper and subordinated debt capital. The inflow of customer funds remained steady over 

the year. We see this as clear evidence of our customers’ ample confidence in BKS Bank’s 

business model, which has to date proved to be crisis-resistant. Including subordinated 

debt capital, customer funds totalled €3.95 billion at year-end and were sufficient to fund 

roughly 90 per cent of the loans and advances outstanding to customers at that time. 

There were, in particular, strong deposit inflows into passbook accounts, which were a safe 

haven against the backdrop of the financial markets crisis and the significant increase in 

deposit guarantee ceilings. Above all, we registered a huge increase in the rate of growth 

of savings deposit balances to 16.2 per cent, compared with 4.4 per cent in 2007. The yearend 

balance of roughly €1.68 billion was the biggest in the Bank’s history. Other payables, 

comprising sight and time deposit balances, fell by 3.8 per cent versus the end of 2007 

to €1.82 billion. It was, above all, institutional clients who entrusted money to us as time 

deposits. Although it became increasingly difficult to place bonds in the market as the 

year progressed, it proved possible to keep BKS Bank debt securities in issue, comprising 

liabilities evidenced by paper and subordinated debt capital, at the same high level as in 

2007, resulting in a year-end total of €452.0 million. 

While redemptions came to €69.1 million, new issuances totalled a respectable €83.9 million. 

We were able to issue hybrid capital for the first time, in the amount of €20.0 million, 

BKS Bank’s business 

model is founded on a 

broad deposits base. 

The savings deposit 

balance stands at a 

record high of €1.68 

billion. 

51

52 

The fall-off in interbank 

trading alters the 

structure of the 

Balance Sheet. 

BKS Bank 

Kreditinstitutsgruppe 

computes its own 

funds requirement 

using the Basel II 

standardized approach. 

Sustainable business 

growth assured by a 

solid own funds base. 

Our first hybrid capital 

issuance supplements 

Tier 1 capital. 


via our Group subsidiary BKS Hybrid alpha GmbH. The 3.1 per cent increase in the line item 

Equity to €464.7 million was primarily due to the addition of profit for the year. 

The marked fall-off in interbank trading and the associated drop in its contribution to our 

balance sheet total increased the relative weight of corporate customer business within the 

Balance Sheet. At year-end 2008, receivables from customers already accounted for 71.7 

per cent of our assets, as against 63.6 per cent at the end of 2007. The proportion of the 

total accounted for by primary deposits increased to 66.0 per cent. Our equity also kept 

pace with our responsible expansion of business volumes and again came to roughly 7.8 per 

cent of our balance sheet total in 2008. 

Own funds 

BKS Bank Kreditinstitutsgruppe manages its own funds in accordance with the provisions 

of BWG that are in force at the time. The own funds requirement for credit risk was still 

8.0 per cent of the basis of assessment for the purposes of § 22 Abs. 2 BWG (banking 

book) in 2008. This basis for capturing credit risk is the sum of the Bank’s risk-weighted 

receivables, comprising assets, off-balance-sheet positions and derivatives. Potential risk 

calculated on this basis is measured against eligible own funds. Since the beginning of 

2008, our own funds ratio and basis of assessment have been calculated in accordance 

with the Solvency Directive, which takes its bearings from Basel II. Because of the new way 

in which these numbers are calculated, comparisons with prior-year figures are of limited 

validity. BKS Bank uses the standardized approach to calculate its capital charges for credit 

and operational risk. The computation of the own funds requirement for the trading book 

is regulated by the provisions of § 22 o BWG. 

At year-end, eligible own funds calculated in accordance with the provisions of §§ 23 und 

24 BWG were found to total €450.9 million. Surplus own funds came to €123.9 million, 

and the surplus taking into account the capital charge required for operational risk was 

€102.7 million. The own funds ratio of the Kreditinstitutsgruppe was 11.03 per cent, compared 

with 10.03 per cent in 2007. Our Tier 1 ratio increased by 106 basis points to 6.90 

per cent. 

A number of factors influenced the development of our own funds during the year under 

review. To permanently supplement the Tier 1 capital of the Kreditinstitutsgruppe, Group 

subsidiary BKS Hybrid alpha GmbH issued our first hybrid capital bond in the final quarter 

of 2008. The issuance totalled €20 million, and the bond sold well. In all, our Tier 1 capital 

inclusive of the addition to retained earnings increased by about €46 million during the 

year under review.


UniCredit’s announcement in June of its plans to sell its minority stake in our bank by the 

end of 2008 delayed a capital increase at BKS Bank AG that had previously been planned 

within the scope of its authorized capital. nonetheless, BKS Bank had and has sufficient 

own funds. We have carefully analyzed the advantages and disadvantages of the programme 

of government guarantees and capital support that has been offered to Austria’s 

banks, but we do not currently intend to make use of it. 

OWN FUNDS 

€m 2008 2007 2006 

Capital stock 50.0 50.0 50.0 

Hybrid capital 20.0 — — 

Reserves net of intangible assets 211.9 185.9 191.8 

Tier 1 281.9 235.9 241.8 

Hidden reserves 5.6 5.6 5.6 

Eligible supplementary capital 154.9 155.8 154.3 

Gains and losses taken to equity 61.3 60.7 54.0 

Eligible subordinated liabilities 13.8 14.0 7.2 

Supplementary own funds 1 (Tier 2) 235.7 236.1 221.1 

Deductions from Tier 1 and Tier 2 66.6 66.6 66.6 

Eligible own funds 450.9 405.1 396.3 

Tier 1 ratio 6.90% 5.84% 6.72% 

Own funds ratio 11.03% 10.03% 11.01% 

Basis of assessment for the banking book 4,087.7 4,039.2 3,598.5 

Own funds requirement 327.0 323.1 287.9 

Surplus own funds (without operational risk) 123.9 82.0 108.4 

Own funds requirement for the trading book 3.3 2.9 1.4 

Own funds requirement for operational risk 21.2 — — 

Surplus own funds 102.7 82.0 108.4 

1 Supplementary own funds may only be recognized up to the amount of Tier 1. 

53

54 

The internationalization 

process continued 

apace. We extend our 

market presence in 

Slovenia, Croatia and 

Slovakia. 


International operations 

Having already expanded within Austria, BKS Bank first entered the market of a neighbouring 

country when it acquired a leasing company in Slovenia in 1998. Ten years down the line, it 

has leasing and banking subsidiaries, branches and representative offices in both Slovenia 

and Croatia as well as a leasing company and a representative office in Slovakia. In addition, 

customers are served by representative offices in Italy and Hungary. Expansion has 

always taken place in conformity with the Bank’s Vision and Mission, namely without outside 

help and in a profit-orientated and risk-aware manner. When choosing staff, we almost 

always employ local personnel. This has played just as important part in our success as a 

progressively growing product line tailored to customers’ needs. BKS Bank is now firmly 

established in its foreign markets. To date, the financial crisis that has been developing since 

mid-2007 has affected it only peripherally. 

Slovenia 

Our banking operations in Slovenia have thrived since BKS Bank’s first branch in Slovenia 

opened in 2004. When we started developing the product line of a fully fledged bank 

in Slovenia, customers were initially offered just finance products, but deposit and payment 

services for corporate and business banking customers were subsequently added to 

the range. BKS Bank now supplies its Slovenian customers with all the products provided 

by a so-called universal bank, including account packages, passbook accounts and credit 

cards. Securities services are the only exception, and they will follow in 2009. 

Extending the product line also involved renovating our Head Office building in Ljubljana 

during 2008. BKS Bank’s first counter in Slovenia was installed on the ground floor of this 

building, and customers are already making frequent use of it. The relocation of our branch 

in Maribor and the creation of a new branch in Celje and a customer service unit in Kranj 

are planned for 2009. Our most important line of business in Slovenia remains finance 

services. At year-end 2008, the branches in Ljubljana and Maribor had a total loan portfolio 

of €384.2 million, and including cross-border operations, BKS Bank’s loan portfolio in the 

Slovenian market grew by about 70 per cent to €492.4 million. Slovenia thus caught up 

OVErVIEW OF BKS BAnK’S ACTIVITIES ABrOAD 

Banking Leasing representative Offices 

Slovenia Ljubljana Branch, Maribor Branch BKS-leasing d.o.o., Ljubljana Ljubljana 

Croatia BKS Bank d.d., Rijeka, Zagreb Branch BKS-leasing Croatia d.o.o., Zagreb 

Cross-border activities 

Zagreb 

Slovakia Cross-border activities BKS-Leasing a.s., Bratislava Bratislava 

Italy Cross-border activities Padova 

Hungary Cross-border activities Sopron


with Carinthia and Styria as the Bank’s most important credit markets. Leasing subsidiary 

BKS-leasing d.o.o., which is also headquartered in Ljubljana, had an equally successful financial 

year, registering a portfolio of roughly €54.5 million on the reporting date. BKS Bank 

employed an average of 34 people in Slovenia in 2008 (2007: 31), seven of whom (2007: 

seven) were working for the leasing subsidiary. 

Croatia 

BKS Bank entered the Croatian market by setting up a representative office in Zagreb and 

developing its leasing subsidiary BKS-leasing Croatia d.o.o. In 2007, BKS Bank acquired a 

stake in Kvarner Banka d.d., which is headquartered in rijeka. This bank specializes mainly 

in financing SMEs. Having gradually acquired additional shares, BKS Bank held a majority 

stake of 99.8 per cent of this bank’s capital stock at year-end 2008. 

In 2008, Kvarner Banka d.d. was renamed as BKS Bank d.d. to emphasize its membership of the 

BKS Bank Group. There are no plans to merge it with BKS Bank, but better use will be made 

of marketing synergies, and this bank will now have easier access to Group resources. In the 

medium term, we plan to extend our territories beyond the Primorje-Gorski Kotar and Istria 

regions, and this should be much easier using a name without regional connotations. BKS 

Bank d.d. took an important expansionary step in October when it opened its first branch 

outside Rijeka. It is located in the newest office high-rise in the Croatian capital Zagreb, 

which also provides space for BKS-leasing Croatia d.o.o. BKS Bank d.d. had assets of €60.5 

million at year-end. It employed an average of 45 people during 2008. Further growth in 

business volumes is planned for 2009. The main focus will be on developing products for 

retail customers. 

InTErVIEW WITH JOSEF MOrAK, 

HEAD OF InTErnATIOnAL AnD TrEASUrY BUSInESS 

How is BKS Bank going to continue its international growth in 2009? 

We are planning two kinds of growth in 2009: opening new branches and extending the 

product line. For instance, we will be opening a new branch in Celje, Slovenia, and the 

Poprad branch in Slovakia will be moving to new premises. In Croatia, BKS Bank d.d. will 

be adding additional products to its retail banking range. 

Why does BKS Bank attach so much importance to using only its own resources to expand in 

its foreign markets? 

BKS Bank aims to give its employees secure jobs and offer its equity holders a secure 

investment. We therefore weigh up the risks and opportunities associated with future 

expansion very carefully. We attach particular importance to ensuring that our capital 

base suffices to support our growth on a long-term basis in both good times and bad. 

55

56 


In the year under review, leasing company BKS-leasing Croatia d.o.o. successfully joined 

the ranks of Croatia’s mid-range leasing companies. This company’s concentration on corporate 

and business customers — for whom it prepares tailor-made motor vehicle, commercial 

vehicle and boat leasing offerings — has proven very effective. During the year 

under review, BKS Bank’s leasing subsidiary in Croatia and its staff of eight built up a lease 

portfolio worth €50.2 million. 

Slovakia 

BKS-Leasing a.s. was acquired in the 2007 financial year. At the time, it was called KOFIS- 

Leasing a.s. It then underwent a strategic reorientation in 2008. It carefully shifted away 

from its former business focus — used car leasing — towards lower-risk property and new 

car leasing. At the end of 2008, BKS-Leasing a.s. had a lease portfolio worth €52.5 million. 

Our Slovakian leasing company is headquartered in Bratislava. Another branch, in 

Banská Bystrica, was added to its existing branches in Žilina, Poprad and Košice in 2008. 

Italy 

BKS Bank’s activities in the Italian market are centred on the Friuli-Venezia Giulia and Veneto 

regions, whose economies we feel to be sufficiently strong. Our representative office in 

Padova gives corporate and business banking customers a bridge into one of Austria’s key 

export markets, offering them a broad network of important customer contacts as well 

as a range of advisory services. Many of our Italian customers invest part of their assets in 

Austria. To serve them better in their home market as well, BKS Bank intends to set up a 

bank there. We pressed ahead with this project during 2008 and the licence application 

process was already underway by the end of the year. 

Hungary 

Alongside the Baltic states and Iceland, Hungary was one of the European countries hardest 

hit by the financial crisis. To date, BKS Bank has one representative office inside Hungary, 

in Sopron, and it offers customers cross-border services from its base in Mattersburg. Our 

lending standards have always been very strict, and this paid off in the year under review. For 

instance, BKS Bank did not grant any forint loans and therefore suffered no impairments as 

a result of exchange losses. At 31 December 2008, BKS Bank had a loan portfolio of €30.9 

million in Hungary.


Segment Report 

BKS Bank’s segment reporting mirrors the Group’s organizational structure, which serves 

as the basis for its internal management reporting systems. To ensure that we can provide 

the best possible customer care and manage our investments in an optimum way, our enterprise 

is subdivided into the three business segments that have emerged over time. They 

are Corporate and Business Banking, Retail Banking and Financial Markets. 

Corporate and Business Banking 

The Corporate and Business Banking segment encompasses all income and expenses arising 

from business conducted with business enterprises and self-employed customers by BKS 

Bank AG, BKS Bank d.d. in Croatia and the Group’s leasing companies. This segment has 

always been the Bank’s strongest foundation in a history dating back to 1922. It reflects BKS 

Bank’s traditional position as a partner to industrial and medium-sized enterprises. 

Retail Banking 

The Retail Banking segment encompasses all income and expenses arising from business 

conducted with personal banking customers and jobholders by BKS Bank AG, BKS Bank d.d., 

BKS-Leasing GmbH, BKS-leasing d.o.o., BKS-leasing Croatia d.o.o. and BKS-Leasing a.s. 

Financial Markets 

The Financial Markets segment encompasses BKS Bank AG’s earnings from its proprietary 

trading activities and from equity investments, financial instruments and maturity transformation 

activities. 

PrOFIT FOr THE YEAr BEFOrE TAX, BY SEGMEnT 

ROE 

CIR 

18.4 

23.9 

29.2 

Corporate and 

Business Banking 

10.3% 12.0% 13.3% 

41.7% 41.7% 40.4% 

9.2 

7.0 

1.3 


17.2% 13.0% 2.8% 

80.3% 82.9% 94.3% 

17.6 

27.6 

15.9 

Financial 

Markets 

11.6% 17.5% 9.1% 

20.2% 24.2% 15.2% 

2006 2007 2008 €m 

57

58 

We employ active 

sales management 

techniques to detect 

synergistic potential in 

the securities, deposits 

and insurance markets. 


We use the same segmental subdivisions for the purposes of internal control of the BKS 

Bank Group. The performance of each segment is measured on the basis of profit for the 

year before tax and the performance indicators return on equity and cost:income ratio. The 

return on equity expresses the relationship between profit for the year and average equity 

allocated to a segment. Detailed segment numbers are presented on page 114 et seq. 

We believe that regular personal contact, flexibility and prompt, unbureaucratic action 

make a particularly important contribution to the success of customer business operations 

alongside in-depth expertise in every area of finance. We therefore endeavour to offer 

our customers a combination of made-to-measure services and an outstanding level of 

commitment. This makes active sales management one of the prerequisites for success 

in the corporate and business and retail banking segments. Its primary focuses are the 

coordination of sales activities and the design of new products with a particular emphasis 

on the securities, deposits and insurance fields. We operate an online shop as a supplementary 

sales channel. It offers customers savings products, account services, building 

society agreements, property, lease and consumer finance and private pension and savings 

advice. We also have alliances with carefully selected, licensed sales partners in the 

residential finance field. 


BKS Bank has always seen itself as an expert point of contact for corporate and business 

banking customers, including in particular large and medium-sized industrial enterprises, 

businesses and trading enterprises, and this too is the way the market perceives us. During 

the year under review, our individualized and holistic care of our customers continued to 

be based on outstanding products and advisory support in every field, and their systematic 

development continued. The corporate and business banking customer base grew by over 

1,800 to 17,800 in the course of 2008. 

COrPOrATE AnD BUSInESS BAnKInG 

€ m 2008 2007 2006 


Charge for Impairment losses on loans and 

advances 

(18.4) (17.1) (18.8) 



Other operating profit 1.6 0.9 0.8 


Segment’s contribution to consolidated net profit 65.7% 40.1% 41.0% 

ROE before tax 13.3% 12.0% 10.3% 

Cost:income ratio 40.4% 41.7% 41.7%


Reinforcing our position in the market 

The portfolio of loans to corporate and business banking customers grew by 19.8 per cent 

to €3.42 billion. It accounted for roughly 80 per cent of total receivables from customers 

before impairment losses on loans and advances. Although the bulk of our lending in the 

corporate and business banking segment was in euros, we continually monitored developments 

in the foreign currency field, especially in view of the rapid increase in the currency 

risk associated with Swiss franc loans in the second half. The euro loan portfolio grew especially 

fast, increasing by 20.4 per cent to €2.79 billion. At the same time, our foreign currency 

loan exposure increased by 17.2 per cent to €628.9 million. This was mainly the result of 

movements in exchange rates. 

This segment, which has always been BKS Bank’s most important, accounted for roughly 

two thirds of its profit for the year. The generally friendly climate that prevailed as the 

economic cycle came to an end kept net fee and commission income stable. Credit growth 

was driven mainly by working capital and investment finance, so it was little affected by 

the financial markets crisis during the first three quarters. However, it weakened as the 

mood changed abruptly in the fourth quarter. The rapid collapse of the interbank markets 

and the associated rise in the cost of funds made correspondingly higher margins necessary 

when granting or renewing credit lines. Continuing to supply our customers with an 

uninterrupted flow of funds even in this difficult market environment has been and remains 

our priority. 

Thanks to substantial growth in the loan portfolio and BKS Bank’s restrictive lending terms, 

net interest income before impairment losses on loans and advances grew accordingly, 

increasing by 17.3 per cent to €55.2 million. This left adequate leeway for the charge for 

InTErVIEW WITH VIKTOr KÖnIG, HEAD OF COrPOrATE AnD BUSInESS BAnKInG 

What can the Austrian economy expect of BKS Bank in 2009? 

In the light of tougher economic conditions, we will be refocusing our products and 

advisory services. For instance, it will be more important than ever before to find the ideal 

financial mix for our corporate and business banking customers. This will cover a range 

from offering companies an optimized supply of liquid funds to giving them advice about 

the many and, in part, new possibilities that exist in the subsidy and risk hedging fields. 

Does that mean the loan portfolio is going be as big as before? 

We will of course strive to go on offering our corporate and business banking customers 

adequate funds to finance their day-to-day operations and their investments. However, 

volumes will depend not least on the extent to which funds can still be raised in interbank 

markets and on how demand from companies develops. And creditworthiness and risk 

positions will, of course, play an important role as well. 

This segment accounts 

for 65.7 per cent of 

profit for the year 

before tax. 

59 

Market positions in 

Austria and abroad 

strengthened. The bulk 

of lending is in euros. 

Corporate and business 

banking customers are 

ensured a supply funds 

even when market 

conditions are difficult.

60 

5 

4 

3 

2 

1 

0 

Growth and cost 

efficiency stabilize 

profit from operating 

activities in a difficult 

environment. 

Enhanced services 

combined with a 

quality product line. 

A tailor-made mix of 

classical and alternative 

finance products based 

on the “Know Your 

Customer” principle. 

rECEIVABLES FrOM COrPOrATE AnD 

BUSInESS BAnKInG CUSTOMErS 

Total receivables 


impairment losses on loans and advances, which increased slightly, by about €1.3 million to 

€18.4 million. It thus cost just 33.4 per cent of net interest income, compared with 36.4 per 

cent in 2007. While fee and commission income from credit operations grew, conditions 

in the market dented our earnings from securities operations. Overall, net income from 

services in this segment grew by 3.1 per cent to €23.1 million. 

Segment profit for the year before tax grew to €29.2 million, as against €23.9 million in 2007, 

continuing the robust uptrend in previous years. The segment’s return on equity increased 

by 130 basis points to €13.3 per cent, and we were able to keep its cost:income ratio low at 

a very good 40.4 per cent, which was below the 2007 figure of 41.7 per cent. 

A responsible partner to business 

To meet their specific needs, BKS Bank’s corporate and business banking customers continued 

to demand quality credit and capital market products and services alongside flexible 

solutions for all their routine banking needs and an extensive range of Internet and electronic 

banking options. Our line of made-to-measure products and advisory services included 

working capital and complex investment finance, lease, foreign currency and export finance 

and professional currency and liquidity risk management. Our customer advisors’ Know 

Your Customer policy proved its worth, with regular contacts between customers and 

account managers making it possible to reach lending decisions quickly and simply. BKS 

Bank is an important link to both Austrian and foreign institutions, including, above all, 

Oesterreichische Kontrollbank and Austria Wirtschaftsservice GmbH, and it remained one of 

Austria’s most important regional processors of export subsidies during 2008. To give customers 

readier access to the available funds, we regularly held so-called subsidy breakfasts 

for them, during which experts from subsidizing agencies presented their programmes and 

made themselves available, on-the-spot, for direct, bilateral discussions with businesses. 

Corporate and Business 

Banking Customers 

2006 2007 2008 2006 2007 2008 

Euros Foreign currencies €bn 

LEASInG In THE COrPOrATE AnD BUSInESS BAnKInG SEGMEnT: 

nET PrESEnT VALUE OF LEASES 

4 

3 

5 

2 

1 

Per cent of total 

1 BKS-Leasing GmbH 35.0% 

2 BKS-Immobilienleasing GmbH 23.1% 

3 BKS-leasing Croatia d.o.o. 17.1% 

4 BKS-leasing d.o.o. 7.8% 

5 BKS-Leasing a.s. 17.0% 

Total: €284.3 million


We continued to emphasize the more creditworthy sectors and industries during the year 

under review. For example, our exclusive line of support and advisory services for doctors 

and pharmacists — the “MedService” — developed into a well-established product. This 

line is comprehensive, covering a range from locating premises for a new surgery through 

to the necessary finance to investment, pension and insurance solutions — and all available 

from a single source. Interest in “MedService” was keen, leading to pleasing growth in the 

customer base in this strategically important area. 

Leasing was a very popular alternative to taking out a loan in 2008. It does not affect a customer’s 

liquidity and does not require recognition on the balance sheet. BKS Bank sells this form 

of finance through its leasing subsidiaries in Austria, Slovenia, Croatia and Slovakia. The net 

present value of the leases in force in their portfolios grew by roughly 20 per cent to €301.6 

million. The lion’s share of this total, €284.3 million, was accounted for by the corporate and 

business banking segment. The various leasing subsidiaries modified their product lines in 

line with the growth in demand. For instance, while movable property leasing remained a 

priority in Croatia, we placed more emphasis on motor vehicle leasing in Slovakia. 

In the investments field, we registered a particularly brisk inflow of temporarily unneeded 

company funds into savings deposits, time deposits and bond investments with appropriate 

maturities. The savings deposit balance in the corporate and business banking segment 

increased by 38.8 per cent to €270.9 million, while the balance of sight and time deposits 

peaked at €1.41 billion in September and then fell to €1.34 billion by year-end. Company 

pension and saving products retained their considerable importance in the corporate and 

business banking segment during 2008. They included collective company insurance policies, 

“phase of life” models, government subsidized benefit schemes for company staff 

and pension plans for company proprietors created to combat threatened gaps in their 

pension provisions. 

We also saw a continuation of the steady uptrend in electronic payments. Over a quarter 

of our corporate and business banking customers were already using our electronic banking 

services to order payments, and numerous small and one-man businesses were making 

use of BKS Bank’s online banking services. Both systems were brought into line with Single 

European Payments Area (SEPA) standards during 2008, allowing us to take full advantage 

of the associated increase in transfer speeds and improved security and transparency. In 

Slovenia too, our development into a so-called universal bank included setting up online 

banking services for our customers. 

A thriving Business Club 

We celebrated the eighth anniversary of the founding of the Business Club. It has proven 

its worth as an important connecting link between BKS Bank and its corporate and business 

banking customers and as a networking platform. In addition to delighting their audiences 

with their lectures, top-of-the-line speakers like Rainer Petek (The North Face Principle), 

Our successful 

“MedService” 

campaign. 

Finance leasing 

operations enjoy a tail 

wind. The portfolio 

grows by 20%. 

A warm response 

to classical and 

standardized 

investment variants 

combined with 

asset management 

components and 

private pension and 

saving products. 

Growing use is made 

of online and Internet 

banking services. 

The Business Club is an 

important instrument 

of customer loyalty. 

61

62 

Lively interest in value 

added services that 

supplement core 

products. 

Retail banking 

customers account for 

more than half of our 

payables to customers. 

Sales activities are 

made more effective 

by multi-channel 

distribution via 

branches, online 

banking services and 

BKS Bank’s Customer 

Service Centre. 


Heinz Müller, Director of Sales & Distribution at Bang & Olufsen, and Armin Assinger (Life 

is a Downhill Race) gave us expert-to-expert tips after club events. The subsidy and export 

breakfasts were equally popular, as was the Business Club Platform in the Internet, where 

Business Club members have an opportunity to present themselves by posting a brief 

profile. 


At year-end 2008, BKS Bank had approximately 115,300 retail banking customers, or 3.3 per 

cent more than at the end of 2007. They consisted exclusively of jobholders. The Retail 

Banking segment remained an essential source of funds in the year under review, accounting 

for 54.0 per cent of total deposits from customers, which grew to €3.49 billion. It therefore 

reduced our sensitivity to developments in the volatile money markets. 

The implementation of our carefully balanced multi-channel concept created modern sales 

structures to serve our customers that have reduced the administrative burden on our 

workforce and make it possible to concentrate mainly on providing customer advice. 

Personal advice provided at our branches was and remains the pivot of our customer relationships. 

Our esteem for our customers is mirrored by the appealing new design of our 

foyers and our inviting, hi-tech self-service areas, where customers can do their day-to-day 

banking around the clock. We rebuilt another six branches in 2008. Over a third of BKS 

Bank’s branches have now been brought into line with our new design concept. Our Customer 

Service Centre is open daily from Monday to Friday between 7 a.m. and 7 p.m., adding 

depth to our customer relationships in an unbureaucratic and efficient way by answering 

general enquiries and by coordinating appointments with account managers, taking payment 

orders and providing account information. 

At the same time, we optimized our Internet services, located at http://www.bks.at. The 

site now has a more attractive design, better resolution and more precise navigation to 

products and service units. 

Our product line for retail customers is based on product packages that are tailor-made 

for specific target groups, addressing financial needs in each phase of a customer’s life. It 

strikes a judicious and responsible balance between quality and price, spanning a range from 

standard account services to made-to-measure credit and lease-based finance solutions to 

personal pension and saving plans and discrete wealth management services. 

The motto of BKS Bank’s FinanzUpdates service is that good, comprehensive financial 

advice does not have to be expensive. This service primarily targets our high net worth 

Premiumkunden customers and Individualkunden personal banking customers, providing 

them with precisely targeted advice to help them ideally plan their financial futures. Special 

WohnCoach (home coach) advisors are on hand to meet all their needs in the construction,


renovation and homebuying fields. In addition, our Asset Structure Analysis service has 

become an almost indispensable building block of wealth development and providing for old 

age. Even in the tough year under review, we continued to uphold our high quality standards. 

One important innovation in the year under review was the Sales Management Group set 

up within Retail Banking, which is one of our Head Office departments. It is on hand to help 

branch staff, giving them advice and support when acquiring new customers. Together with 

the Communication Group, it developed and carried out sales campaigns aimed at specific 

target groups as well as persuading many business proprietors, as private individuals, of the 

quality of our broad range of products for retail customers. 

As for electronic communication, our Online Shop was open round the clock. In addition 

to savings products (the Sparcard savings account, the online savings account and building 

society products), we added loans to our online product line (Kredit mit 3-fach-Schutz 

triple-protection loans and motor vehicle leasing) as well as Vorsorge private pension and 

saving advice module. The newsletter continued to keep online customers and its numerous 

subscribers up-to-date with money matters during 2008. 

Business performance 

The Retail Banking segment was the operational segment most affected by the financial 

markets crisis. Above all, the stubborn slump and general loss of confidence on the part 

of many small investors reduced our earnings from services in this segment as net fee and 

commission income fell by nearly one fifth to €17.0 million. However, the strong inflow 

of customer deposits and our pursuit of a systematic deposit terms and conditions policy 

increased net interest income by roughly €1.0 million or 2.9 per cent to €32.3 million. On 

the one hand, classical fixed-term, fixed-rate passbooks (Kapitalsparbücher) and building 

society products were now much more in demand thanks to the renaissance of conservative 

InTErVIEW WITH KArL MErTEL, HEAD OF rETAIL BAnKInG 

What are BKS Bank’s main retail banking focuses going to be in 2009? 

One key goal will be to promote private home construction, because it also benefits the 

economy. Among other things, we pay part of the cost of any energy saving advice sought 

by our customers. 

Is BKS Bank going to remain a reliable and responsible partner in the investment market? 

The responsible management of the customer funds that have been entrusted to us goes 

without saying. We will continue to develop our advisory services in this area. I must also 

stress that BKS Bank has only ever sold products that people can understand. We have 

never actively sold either subprime or Madoff products. 

63 

There was growing 

demand for classical, 

standard investment 

products combined 

with asset management 

services and pension 

and saving products.

64 

Creditworthiness in the 

retail banking segment 

is outstanding: the 

charge for impairment 

losses on loans and 

advances comes to 

just 4.9 per cent of net 

interest income. 

The retail banking 

segment accounts for 

roughly one fifth of 

total receivables from 

customers. 


investments. On the other, the demand for personal loans rose significantly, increasing the 

portfolio by 7.5 per cent to €864.8 million. For risk reasons and at the FMA’s recommendation, 

we stopped granting foreign currency loans in the autumn of 2008. 

Thanks to prudent risk management and the solid positioning of our retail customers 

within the better rating classes, we reduced the charge for impairment losses on loans 

and advances from €2.1 million in 2007 to €1.6 million in 2008. This improved the segment’s 

risk:earnings ratio from 6.6 to just 4.9 per cent. The €3.4 million or 7.7 per cent rise 

in general administrative expenses to €47.6 million reflected the 3.3 per cent increase in 

staff pay that took place under collective agreements, the substantial increase in branch 

and office space caused by opening new branches and the adjustment of so-called social 

capital in line with the new mortality tables. Profit for the year before tax in this segment 

fell to €1.3 million, failing to match the 2007 profit figure of €7.0 million. The segment’s 

return on equity based on this profit for the year came to 2.8 per cent, compared with 13.0 

per cent in 2007, and the fall in net fee and commission income increased its cost:income 

ratio from 82.9 per cent to 94.3 per cent. 

Personal loans 

The personal loan portfolio accounted for roughly one fifth of our total receivables from 

customers at year-end, namely €864.8 million. The euro loan portfolio grew by 2.0 per cent 

to €528.6 million. Lending in foreign currencies, comprising mainly loans in Swiss francs, 

increased by 17.2 per cent to €336.2 million. However, having still growth strongly in the 

first three quarters, this loan category was affected by severe currency risks in the final 

quarter and stopped growing. At the same time, a large part of the increase in the carrying 

amount of these loans had been caused movements in the SFr/€ exchange rate. During 

the fourth quarter, we actively invited each customer with a bullet foreign currency loan 

to attend an advisory session on mitigating their risk. 

rETAIL BAnKInG SEGMEnT 

€m 2008 2007 2006 


Charge for impairment losses on loans and 

advances 

(1.6) (2.1) (1.2) 



Other operating profit 1.2 1.0 0.8 



ROE before tax 2.8% 13.0% 17.2% 



5 

4 

3 

2 

1 

0 

Total receivables 

As competition continued to intensify during 2008, our quality products sold for reasonable 

prices retained their appeal. As in prior years, new business was driven by home and home 

construction loans. The main focuses were on buying a first home, rebuilding or renovating 

one’s existing home, homebuilding subsidies, saving energy and second homes. We continued 

to deliver on our promises during the year under review with the WohnCoach (home 

coach) brand, which has become the yardstick for quality in the home advice field within our 

catchment area. At the same time, we continued to finance the buying of essentials and our 

personal banking customers’ consumer purchasing through one-off Einmalbarkredit loans, 

instant Privat-Sofort-Kredit loans and Kredit mit 3-fach-Schutz triple protection loans. Most 

motor vehicle finance was provided by our leasing subsidiaries in Austria and abroad. 

Deposits 

Our retail customers’ search for low-risk investments continued to shape saving patterns 

during 2008. Their investments accounted for roughly €1.41 billion of the total savings 

deposit balance of €1.68 billion within the Group, which grew by 16.2 per cent, and thanks to 

our consistent product policies and terms and conditions, we were able to attract numerous 

new customers. We attribute this success to our intensive efforts to exploit this valuable 

source of funding for our robustly growing portfolio of loans and advances to customers. 

Customer response to the BKS SparMix — a combination of passbook account and 

structured guaranteed product launched in the spring of 2008 — was strong. 

During the year under review, roughly €180.4 million of other customer funds were deposited 

into Sparcard savings card accounts. These are variable-rate sight deposit accounts that 

are also available online. They supplement classical passbook products, offering savers a 

normal market interest rate. By year-end 2008, the number of Sparcard holders had risen 

to roughly 39,000. 

rECEIVABLES (rETAIL BAnKInG) 

Receivables from retail 

banking customers 

2006 2007 2008 2006 2007 2008 

Euros Foreign currencies €bn 

5 

4 

3 

2 

1 

0 

PAYABLES TO CUSTOMErS 

Total payables to 

customers 

Payables to retail 

customers 

2006 2007 2008 2006 2007 2008 

Savings deposits Sight and time deposits 

The predominant 

themes in the 

loans market are 

construction, home 

loans and motor 

vehicle leasing. 

Renaissance of the 

classical passbook 

and lively interest in 

capital-guaranteed and 

structured products. 

65

66 

A successful longterm 

alliance with 

Wüstenrot: the 

100,000 th building 

and loan agreement is 

signed. 

The insurance products 

of Drei-Banken 

Versicherungs-AG and 

our ally Generali round 

off our product line as 

a so-called universal 

bank. 

Promoting cash-free 

payments: the latest 

generation of the 

SecurityCard. 


Building and loan operations and insurance 

Building and loan agreements are essential building blocks of medium-term wealth accumulation. 

They have always been associated with emotional values like security, tradition 

and dependability. We therefore continued our close and fruitful cooperation with the 

Bausparkasse Wüstenrot building and loan association, which began in 1965. We highlighted 

the timelessly attractive line of subsidized-premium building and loan products in the 

Wüstenrot range at all our branches and offices. The results were an increase of roughly 

4.6 per cent in new business and the signing of our 100,000 th building and loan contract. 

Insurance is an important supplement to classical banking products. We offer our customers 

insurance products as a sales partner of Drei-Banken Versicherungs-AG and insurance broker 

3 Banken-Versicherungsdienst GmbH, and market acceptance is high. Until late autumn, 

the heightened interest in the state-subsidized pension and saving products of our ally 

Generali and in our own risk insurance products, which are coupled to our strongly growing 

loan portfolio, largely mirrored the upward trend of previous years, but growth weakened 

in the fourth quarter as the economic outlook deteriorated. Nonetheless, both sales of 

single-premium endowment insurance policies and the demand for capital-guaranteed 

products were largely undiminished up to the end of the year. Classical endowment and 

pension insurance products also benefited from the trend towards stable-value, fluctuation 

resistant saving variants as a way of closing pension gaps. BKS Bank’s fees and commission 

income from insurance sales came to roughly €1.1 million during the year under review. 

Internet banking and cards 

BKS Bank’s virtual, online branch remained open round-the-clock for retail banking customers 

in 2008. Demand for the products that had been adapted for our Online Shop was 

brisk. They included the Sparcard saving card, the Spar- und Privatkonto saving and personal 

account, building and loan products, 3fach-Schutz triple-protection loans and motor vehicle 

leasing. For reasons of both convenience and security, customers made lively use of the 

shop’s domestic and foreign payment, standing order management, account statement, 

transaction enquiry and securities transaction services and frequently accessed our real 

estate ally’s extensive property offerings. In all, 536 new Sparcard accounts were opened 

online during 2008, as were 148 savings accounts and over 40 personal accounts. The 

enhanced functions and user-friendliness of the new generation of the Security Card 

used exclusively by the 3 Banken Group increased its market acceptance. On the reporting 

date, some 18,500 retail account holders with an Internet connection were using this 

phishing-resistant computer in credit card format which, as necessary, calculates a new 

six-digit encryption key for each transaction. These keys cannot be cracked using today’s 

technology. 

In the cards market, BKS Bank is a contractual partner of card complete Service Bank AG 

and PayLife Bank GmbH and a sales partner of other major players like Diners and American 

Express, enabling it to supply all the usual credit cards. By year-end 2008, we had issued


200 

150 

100 

50 

0 

-50 

approximately 53,700 customer cards with Maestro functions and some 21,000 credit 

cards. 

Securities operations 

The equity markets had a very difficult 2008. The capital markets and, as a result, most 

equity indices were overshadowed by the biggest economic slump in decades. By 15 September 

(the day on which the investment bank Lehman Brothers filed for Chapter 11 bankruptcy 

protection), if not earlier, the financial crisis began to escalate, with massive waves 

of selling of a size and intensity that, in many areas, took on historical dimensions. This triggered 

a flight into supposedly safe money market instruments. Even globally acknowledged 

investment experts like Warren Buffet and the Harvard University Endowment Foundation 

suffered unprecedented losses. In this market environment, prices in most investment 

classes crashed. Equities, raw materials, corporate bonds, convertible bonds and alternative 

investments were hardest hit by the uncontrollable slump. In this period, investors turned 

to government bonds and money market investments as safe havens, making them the 

investment building blocks of choice in the bond market. 

This unstable market environment did of course have a substantial impact on BKS Bank’s 

securities operations. Including balances at 3 Banken-Generali Investment-GmbH, which acts 

as BKS Bank’s custodian, the value of customers’ securities accounts had fallen from €6.28 

billion to €4.79 billion by year-end. Whereas customer holdings of fixed-interest securities 

increased substantially, there were big outflows of and valuation losses on equities and 

fund investments. Our fee and commission income on securities dealings fell by roughly 

one third to €12.6 million. 

PErFOrMAnCE OF KEY InVESTMEnT CLASSES, 10-YEAr COMPArISOn 

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 

MSCI, € JPM Government Bond Index, € CS Tremont Hedge Index 3-Month Money, € 

DJ AIG Commodity Index (relative month-on-month change, percentage points) 

Source: Bloomberg. 

The troubled state 

of the international 

money and capital 

markets leads to 

a massive drop in 

prices in every key 

investment class. 

Balances in customer 

securities accounts fall 

sharply. 

67

68 

Our VSA service 

and 3-pillar model 

prove their worth 

as core elements 

of our investment 

consultancy services. 


Asset structure analysis (VSA) remained the pivot of our investment consultancy services 

during the year under review. It enabled us to provide some 5,200 customers with wellfounded 

basic data for their investment decisions based on our proven 3-pillar investment 

model. 

The severity with which the painful financial markets crisis has now turned into a global phenomenon 

affecting virtually every region and terminating previous liquidity-driven growth 

trends has reaffirmed the effectiveness of our substantial spending on staff training and 

state-of-the-art technology. Although one cannot liken any previous crisis to the current 

OVErVIEW OF BKS BAnK’S SECUrITIES InVESTMEnT PrOCEDUrE 

BKS Bank’s investment 

strategy 

is based on the 

business and profit 

outlooks and the 

risk situation 

BKS BAnK’S 3-PILLAr InVESTMEnT MODEL 

Traditional 

Investments 

Bonds 

Equities 

Cash 

Customer is given our MiFID Information Brochure 

Asset Structure Analysis 

An Investor Profile is prepared on the basis of the investor’s personal 

ex perience, knowledge, financial circumstances and investment goals 

The structure of the securities account is decided using the 3-pillar model: 

traditional investments, investments with a safety net, alternative investments 

The structure of the securities account is put in place using fund investments, 

structured products, alternative instruments and individual securities 

Regular performance tests and re-assessment of the structure of the 

securities account 

Asset Structure Analysis (VSA) 

Investments with 

a Safety Net 

Guaranteed Products 

Structured Products 

Convertible Bonds 

Hedging Concepts 

Alternative 

Investments 

Absolute Return Concepts 

Hedge Funds of Funds 

Property 

High Some Low 

Dependence on Traditional Markets


slump, it is sowing seeds of change that will also create big opportunities. In the securities 

segment, we can depend on our most important resource — customer trust. Our experienced 

investment advisors are working to break the vicious circle of “greed – fear – loss” with 

a “common sense – self-discipline – success” approach that applies moderation on the basis 

of the foundations for decision-making provided by the asset structure analysis process. 

We have kept our promise and reinforced our excellent advisory service standards to provide 

high-end asset management, investment consultancy and fund management services 

and to give in-depth support to private foundations and high net worth clients. Throughout 

the year under review, we kept every one of our investment advisors informed about our 

investment strategy both in advance via our in-house intranet channel and during regular, 

on-the-spot securities reviews held at our regional head offices. 

Our customer advice services did, of course, focus particularly on the offerings of 

3 Banken-Generali Investment-GmbH. This investment fund company (a so-called “KAG”) 

was set up in 1998. It is a joint venture of the Oberbank, BTV, the Generali Group and 

BKS. The 3 Banken European Top Mix managed by our Klagenfurt asset management unit 

won second place in the 2008 Dachfonds (fund of funds) awards of geld business magazine 

for its five-year performance. Germany’s FONDS professionell investment fund magazine 

awarded the 3 Banken Renten-Dachfonds fund of funds an excellent second place for its 

three-year performance in the Dachfonds Anleihen Global category of the 2008 Deutscher 

Fondspreis awards. 

Financial Markets 

The Financial Markets segment encompasses our earnings from equity investments, securities 

held in BKS Bank’s own securities portfolio and receivables from and payables to other 

banks as well as our earnings from maturity transformation activities. 

Asset liability management 

BKS Bank’s Aktiv-Passiv-Management (ALM: Asset Liability Management) Committee 

remained responsible for maturity management during 2008. Our earnings from maturity 

management included net income from proprietary securities trading activities, the management 

of receivables from and payables to other banks and earnings from derivatives 

in the banking book and internal reference interest rate settlements. The fourth quarter 

of 2008 was a particularly challenging time for the ALM Committee. Asset liability management 

activities focused mainly on the prudent handling of market risks. In the light 

of worsening turbulence in the financial markets, risk minimization was an essential element 

of all investments and disinvestments. Extensive hedging action was taken to limit 

fluctuations in the value of assets and the resulting adverse effects on the Income Statement. 

We made greater use of the option of measuring certain assets at fair value if they 

were hedged with a derivative. nonetheless, BKS Bank was not immune to the generally 

Intensive, real-time 

staff training ensures 

the high standard of 

our investment advice 

services. 

The successful asset 

management services 

provided by 3 Banken 

Generali Investment 

KAG. 

69

70 

The Financial Markets 

segment accounts 

for €15.9 million 

or 35.9 per cent of 

consolidated profit. 

Stable earnings from 

equity investments. 


precarious development of the capital markets. Lasting impairments in even first-class rating 

classes led to corresponding impairment losses. 

Business performance 

Reflecting markets in crisis, this segment’s profit for the year before tax fell by €11.7 million 

or 42.4 per cent to €15.9 million. This was mainly due to the €27.3 million decline in net 

income from financial assets, which came to negative €23.1 million, €13.9 million of the loss 

being due to impairment losses on fund investments in the proprietary trading portfolio 

that were recognized in the Income Statement. However, we would like to stress that BKS 

Bank did not hold any subprime positions in its proprietary trading portfolio and had not 

invested in Madoff products. We had also stayed out of problematic investments in Austria 

such as Immofinanz, Meinl and AvW. 

On the other hand, we were very pleased with big increase in this segment’s net interest 

income, which grew by 56.1 per cent to €43.2 million. Alongside a sizeable increase in 

earnings from maturity transformation, the stable development of interest income was, 

above all, due to the €14.3 million contribution to BKS Bank’s profit made by the entities 

accounted for using the equity method, namely the Oberbank, BTV, ALGAr and Drei-Banken 

Versicherungs-AG. Earnings from investments in subsidiaries and other equity investments 

also made an important contribution to the increase in net interest income, growing by a 

total of €1.2 million or roughly one quarter to €5.9 million in the year under review. The 

principal purposes of these equity investments are to support and reinforce our core business 

operations and to explore synergies. For instance, BKS-2000 Beteiligungsverwaltungs 

GmbH based in Klagenfurt acts as our holding company, holding our 30 per cent stake 

in 3-Banken Beteiligungs GmbH, Linz. This company in turn holds a 28.6 per cent stake in 

Danube Equity Invest and a 13.3 per cent stake in Mezzanin Finanzierung AG. Oesterreichische 

Kontrollbank AG, PayLife Bank GmbH, Bausparkasse Wüstenrot AG and Wiener Börse AG also 

made significant contributions to our net income from equity investments. Because of 

FInAnCIAL MArKETS SEGMEnT 

€m 2008 2007 2006 


Charge for impairment losses on loans and advances — — — 


Net trading income 1.4 1.7 1.0 


net income from financial assets (23.1) 4.2 2.3 



ROE before tax 9.1% 17.5% 11.6% 



conditions in the market, our efforts to generate additional income from proprietary trading 

in periods of high market volatility were of limited effectiveness. The resulting profit 

of €1.4 million was down on the 2007 figure of €1.7 million. 

The return on equity before tax in the financial markets segment was significantly lower 

than in 2007, falling by 8.4 percentage points to 9.1 per cent. However, our cost:income 

ratio in this segment fell from 24.2 to 15.2 per cent, demonstrating its efficiency. 

We issued six tranches of our own securities. Including a number of structured securities, 

they were worth €76.2 million. These issuances satisfied our need for long-term financial 

resources and strengthened our own funds. 

BKS BAnK nOTES OrIGInATED In 2008 

Coupon Designation ISIN Nominal amount 

4.50% BKS Bank-Ergänzungskapital-Obligation 2008-2016/2 AT0000A092x1 € 7,700,000 

BKS Bank-Stufenzins-Ergänzungskapital-Obligation 2008-2020/4 AT0000A0A002 € 15,000,000 

7.35% BKS Hybrid alpha GmbH Schuldverschreibung 2008/ unlimited AT0000A0BK75 € 20,000,000 

4.25% BKS Bank-Obligation 2008-2013/1 AT0000A08LZ2 € 15,450,000 

4.50% BKS Bank-Obligation 2008-2012/3 AT0000A09YT6 € 8,000,000 

BKS Bank World Bonus Garant 2008-2014 AT0000A088B5 € 10,000,000 

In the volatile environment that prevailed in the fourth quarter, rigorous management of 

the risks arising from interbank operations was one of the focuses of our strict rating guidelines. 

This process included the appropriate management of limits. With our goal in mind of 

reducing the amount of funds that we need to raise by entering into liabilities in the money 

market and in view of the liquidity squeeze in the wake of the US property crisis, we strove 

to acquire more primary deposits. In 2008, all of BKS Bank’s correspondents were in the 

top AA to A3 rating classes. Our network of correspondents consisted of some 350 banks 

with which we have regular money dealings. 

rECEIVABLES FrOM OTHEr BAnKS, BY BKS BAnK rATInG 

2 

3 

1 

1 Rating class AA 16.7% 

2 Rating class A1 58.6% 

3 Rating classes A2 to A3 24.7% 

Rating classes B1 to B2 0.0% 

Other rating classes 0.0% 

Our correspondents’ 

ratings are first-class; 

we place greater 

emphasis on primary 

deposits to secure our 

funding base. 

71

72 

Risk management is 

an essential 

component of 

our business policies. 

94.5 per cent of all 

loans are free from any 

recognizable risk of 

default. 

2 


The deepening financial markets crisis irrefutably confirmed the need to put professional 

risk management at the heart of our internal control mechanisms more than ever 

before. The core elements of this process at BKS Bank are the Group-wide identification 

of all material risks, the independent measurement and assessment of such risks and riskreturn 

management on the basis of those measurements and assessments. Our risk policy 

standards, accountabilities and management principles are enshrined in BKS Bank’s business 

policies and in its risk strategy, which targets the efficient deployment of own funds 

from a risk and return point of view. A detailed presentation of the risk principles applied, 

the associated organizational structures and our risk measurement and risk monitoring 

processes can be found in the section of the Notes to the Consolidated Financial Statements 

entitled Management of overall bank risk. 

BKS Bank’s risk monitoring and risk management processes, executed by risk Management, 

differentiate between credit risk (inclusive of equity investment risk), market risk, liquidity 

risk and operational risk. 

Credit risk 

Credit risk is BKS Bank’s biggest risk category. Our credit risk management objectives are 

the long-term optimization of the relationship between risk and return in BKS Bank’s lending 

operations and the achievement of the credit risk targets budgeted for in the corporate 

and business banking and retail banking segments. 

BKS Bank has a 10-class internal rating system. We have divided the BWG risk class No 

recognizable risk of default into five internal rating classes (AA – B1). Rating classes B2 – C1 

are designated as Requiring observation. We have divided the BWG risk class Heightened 

risk of default into two classes (C2 and D1). We classify receivables rated D2 as carrying an 

Acute risk of default. At the end of 2008, roughly 94.5 per cent (2007: 95.4 per cent) of our 

risk exposure belonged to the class No recognizable risk of default. 

rELIABILITY OF rISK-WEIGHTED ASSETS In 2008, 

APPLYING BWG 

3 4 

1 


1 No recognizable risk of default 94.5% 

2 Requiring observation 4.4% 

3 Heightened risk of default 1.09% 

4 Acute risk of default 0.01% 

2 

3 

OVErALL BAnKInG rISK, BY rISK CLASS 

1 

1 Credit risk 77.5% 

2 Operational risk 4.2% 

3 Market risk 18.3%


Our impairment allowance balance at 31 December 2008 came to €96.2 million and was 

thus virtually unchanged from year-end 2007, when it came to €96.3 million. BKS Bank’s 

risk:earnings ratio of 15.4 per cent reflected its very solid performance. The risk:earnings 

ratio in the retail banking segment was 4.86 per cent, compared with 6.63 per cent in 

2007. The loan portfolio in the corporate and business banking segment is incomparably 

larger, but there too, this indicator — which compares the charge for impairment losses on 

loans and advances with net interest income — was substantially down on the prior year 

figure of 36.38 per cent to 33.35 per cent. 

Large loan risks are secured by a cover pool at Alpenländische Garantie-Gesellschaft m.b.H. 

(ALGAR), which is a 3 Banken subsidiary. ALGAR’s role is to guarantee the large loans of 

the three banks that hold its equity. It does so by giving guarantees and assuming liability 

for loans and advances in other ways. 

At year-end, customer receivables that were more than 90 days past due totalled €106 million. 

These were receivables where agreed interest or repayments were 90 days or more 

overdue and that were therefore required by Basel II to be classified as being at risk of 

default. 

In the fourth quarter, we launched a risk mitigation project prompted by the financial markets 

crisis and the associated economic downturn. Its purpose was to ensure the timely 

detection of early-warning signs. A special programme of measures that included improving 

collateralization was applied to certain customer groups identified as being particularly at 

risk. 

As in prior years, the main sector and industry focuses of our lending operations were Gewerbe 

businesses, industrial manufacturers and private households, these customer categories 

rECEIVABLES FrOM CUSTOMErS, BY rATInG 

1,310 

1,156 1,134 

948 

694 

913 

791 

644 

1 Property 60.7% 

2 Account and savings balances 4.5% 

3 Securities accounts 4.6% 

4 Guarantees 5.5% 

5 Insurance 5.1% 

6 Pledged assets 5.8% 

7 Other 13.8% 

115 

45 

150 130 

146 165 184 

107 94 111 

30 16 39 22 

AA A1 A2 A3 B1 B2 C1 C2 D1 D2 Unrated 

Exposure in 2007, €m Exposure in 2008, €m 

5 

4 

FUrnISHED COLLATErAL 

3 

6 

2 

7 

3 Banken subsidiary 

ALGAR guarantees the 

Group’s large loans. 

A balanced mix of 

customers in 

different sectors and 

industries combined 

with appropriate 

risk management 

processes. 

1 

73

74 

A satisfactory credit 

risk position in foreign 

markets. 

BKS Bank conforms 

fully to the FMA’s 

recommendation to 

curb foreign currency 

credit risks. 

7 

8 

6 

9 

5 4 


1 

accounting for roughly 63 per cent of our total exposure. They were ahead, in percentage 

terms, of retailing and wholesaling and the professions. This gave the portfolio a well balanced 

mix of sectors and industries backed up by appropriate risk management. Our lending 

operations abroad focused on business centres in the regions in which we operate close to 

the Austrian border. Slovenia, Croatia and Slovakia accounted for about 87 per cent of our 

foreign loan portfolio. We have set a Group-wide ceiling of 25 per cent on the proportion of 

total cash advances accounted for by cash advances to non-banks abroad, and it will remain 

in place until the end of 2010. These advances currently account for approximately 21 per 

cent of the total, and our risk position in foreign markets has been developing satisfactorily 

despite the palpable economic downturn. We distinguish between Austria and abroad for 

both risk management and risk control purposes. Our lending guidelines abroad are more 

stringent and are tailored to the peculiarities of each country. 

In October 2008, Austria’s Financial Market authority (FMA) strongly urged banks not to 

grant any more foreign currency loans. In addition, the FMA instructed banks to exercise 

greater caution in their management of foreign currency credit risk. BKS Bank conformed 

fully to this FMA appeal and has been paying even greater attention to the management of 

foreign currency loans and the growing risk problems caused by repayment vehicle models. 

In the medium term, we want to steadily and permanently reduce the proportion of 

foreign currency loans in the total loan portfolio, which currently stands at about one quarter. 

Nationwide and adjusted for movements in foreign exchange rates, foreign currency 

lending to domestic non-banks totalled roughly €56 billion at the end of 2008, compared 

with a total loan portfolio of €311.1 billion. This translates into a foreign currency lending 

ratio of about 18 per cent. 

Equity investment risk 

BKS Bank’s business policy in this area is, first and foremost, only to acquire equity investments 

that are conducive to its banking operations. When it came to investing in subsidiaries, 

the emphasis during the year under review was on acquiring strategic partners 

in the banking and financial institution sectors and ancillary, banking-related service 

3 

LENDING, 

BY SECTOr AnD InDUSTrY 

1 Industrial manufacturing 17.1% 

2 Retailing and wholesaling 8.8% 

3 Gewerbe businesses 28.6% 

2 

4 Transport 2.6% 

5 Public sector 0.7% 

6 Private individuals 16.9% 

7 Professions 7.0% 

8 Tourism 3.4% 

9 Other 14.9% 

4 

3 

5 

2 

6 

7 

8 

FOrEIGn LEnDInG, BY COUnTrY 

1 

1 Slovenia 55.2% 

2 Croatia 26.3% 

3 Hungary 3.5% 

4 Italy 0.8% 

5 Germany 4.2% 

6 Czech Republic 0.2% 

7 Slovakia 5.5% 

8 Other 4.3%


25 

20 

15 

10 

5 

0 

industries. BKS Bank does not strive to acquire such equity investments in countries whose 

legal, political or economic situations are judged to be risky or to trade on a regular basis 

in such equity investments. 

Consequently, risk in the Bank’s equity investment portfolio is currently deemed to be 

small, and we do not intend to assume any larger equity investment risks in the future. At 

31 December 2008, our equity investments totalled €277.8 million, compared with €278.4 

million at the end of the previous year. €227.6 million thereof comprised our investments in 

Oberbank and BTV. The reduction in the total resulted from revaluing equity investments 

classified as available-for-sale (AfS) financial assets. 

Market risk 

Market risks result from changes in market prices (i.e. interest rates, equity prices, commodity 

prices and foreign exchange rates). Market risks are mainly a consequence of adverse and 

unanticipated changes in economic and competitive conditions. BKS Bank has defined three 

categories of market risk, namely interest rate risk, equity price risk and currency risk. 

Interest rate risk and equity price risk are of central importance from a market risk management 

point of view. At 31 December 2008, the ratio of BKS Bank’s interest rate risk to its 

eligible own funds assuming a shift in rates of 200 basis points, which must be reported in 

the interest rate statistics prepared for OeNB, came to 9.68 per cent (year-end 2007: 10.61 

per cent). The 99% 10-day value at risk (Var) in our banking book averaged €10.9 million 

in 2008. The chart below shows the sharp increase in value at risk caused by the volatility 

of the markets in the autumn of 2008. 

Despite our restrictive management of equity investment risk, BKS Bank was not immune 

to the effects of the financial markets crisis, with impairments totalling €16.8 million. On 

the other hand, they were made up for by our good profit from operating activities. 

MArKET rISKS (VALUE AT rISK) 

2005 2006 2007 2008 

Total risk Equity price risk Interest rate risk Currency risk 

€m 

Intensive monitoring of 

all indicators that have 

implications for market 

risk. 

75

76 

Reliable liquidity 

management 

continued to prove its 

worth during a difficult 

period for the market 

in the fourth quarter. 

SUrPLUS LIqUIDITY OVEr TIME €m 

Avg. 31 

24 

9 

22 

52 

66 

55 


30 

26 28 25 

22 

15 

J F M A M J J A S O N D 

2006 

Liquidity risk 

We manage liquidity risk in such a way as to ensure that BKS Bank is always in a position 

to punctually meet its financial obligations. The Treasury Division is responsible for shortterm 

liquidity management. The management of medium and long-term liquidity is carried 

out by the Asset Liability Management Committee. 

When it came to procuring liquidity, the financial markets crisis created an exceptional 

situation. The insolvency of the investment bank Lehman Brothers reduced the level of 

trust between banks to an all-time low. As a result, their willingness to advance funds also 

evaporated and the interbank market froze up completely. BKS Bank reacted to the crisis 

by taking the following action, which was rewarded by success: 

– borrowing funds with the backing of repo-capable collateral provided by OeNB; 

– working to attract more deposits from customers; 

– actively managing loan promises. 

Thanks to our liquidity risk management activities, BKS Bank was able to react rapidly and 

in a targeted manner to the difficult and unusual situation in the market. As a result of 

our conservative liquidity management policies and the trust of the customers who invest 

with us, BKS Bank’s liquidity position was always comfortable and it was able to continue 

to lend. BKS Bank met the Austrian liquidity requirements laid down in § 25 BWG at all 

times. At 31 December 2008, it had about €207 million of surplus liquidity. Its surplus 

liquidity over 2008 as a whole based on monthly averages came to roughly €59 million. 

13 

J 

44 

F 

Avg. 22 

9 

M 

16 

A 

30 

M 

14 

23 

J J 

2007 

12 

A 

44 

S 

19 

O 

10 

N 

35 

D 

Avg. 59 

31 

J 

22 

F 

16 

9 

11 

M 

A 

M 

60 

32 

J J 

2008 

A 

42 

40 

S 

74 

O 

169 

N 

207 

D


We measure so-called deposit concentration to evaluate the deposit withdrawals risk caused 

by the possibility of a run on deposits. This variable underscores the dangers associated 

with relying on large deposits. Depending on its development, it can lie between zero and 

one. At 31 December 2008, BKS Bank had a deposit concentration of 0.34 per cent (yearend 

2007: 0.41 per cent), so it actually improved in a difficult market environment. 

In view of the growing importance of liquidity management in the financial sector, the Basel 

Committee on Banking Supervision published a new, updated capital adequacy standard in 

2008. Consequently, one of our focuses in 2009 will be on comprehensively adapting our 

liquidity risk management processes in line with current requirements. 

Operational risk 

During 2008, our operational risk management activities placed a special emphasis on continuing 

to implement measures resulting from the risk assessment process and on optimizing 

processes accordingly. For instance, we are currently implementing optimizations in the 

securities ordering and foreign currency switching fields. 

Our operational risk losses in 2008 totalled €0.5 million (2007: €0.9 million). This was very 

low compared with prior periods. At year-end 2008, our regulatory capital requirement for 

operational risk calculated on the basis of the standardized approach was €21.2 million. The 

corporate and business banking segment accounted for about 45 per cent of the total, and 

roughly 19 per cent of this capital requirement was for the retail banking segment. 

rISK LOSSES In THE MOST COMMOn OPErATIOnAL rISK CATEGOrIES 

Employment practice 

System failures 

Processing errors 

Material damages 

Business practice 

Fraud 

20 

23 

11 

66 

51 

45 

67 

70 

171 

208 

225 

Losses in 2008 

Losses in 2007 

€k 

445 

77

78 

Restructuring of the 

3 Banken subsidiary 

3BEG is completed. Its 

services are billed on a 

cost-by-cause basis. 


Organization and IT 

After staff costs, IT costs are the most important component of the line item Other administrative 

costs. BKS Bank keeps a correspondingly close eye on the development of its IT 

costs. The basic requirements in the IT fields are a powerful, failsafe IT landscape, well 

trained system maintenance staff and software packages that enable to staff to work efficiently 

and in a customer-friendly manner. 

Successful IT projects 

During the 2008 financial year, we completed the restructuring of 3-Banken-EDV Gesellschaft 

mbH (3BEG) begun in 2006. This 3 Banken subsidiary is based in Linz and has additional 

centres of excellence in Klagenfurt and Innsbruck. The centre of excellence in Klagenfurt is 

responsible for IT operations in the loan, deposits and controlling fields. Since the financial 

year under review, its services have been consistently billed to the members of the 3 Banken 

Group on a cost-by-cause basis. 

3BEG was able to complete a number of resource-hungry sub-projects during the year under 

review. For instance, it designed a graphic user interface for the KKnEU core banking system 

that makes working with it far more comfortable for every user. To make the programme 

run faster, a special optimization programme was developed to relieve the strain on computers 

at branches. Other equally successful developments included the introduction of 

new CRM software, that, in addition to managing appointments, also includes modules for 

writing and managing meeting reports, planning and pursuing sales targets and campaign 

InTErVIEW WITH JOHAnnES ZEBEDIn, HEAD OF OPErATIOnS 

Why is BKS Bank changing over to Microsoft Vista in 2009 even though Microsoft has already 

presented its next operating system generation? 

A stable IT system is everything to a bank. nowadays, transactions aren’t possible at all 

without a PC. This makes it important that we only use fully developed software that is as 

reliable as possible. In addition, we need lead time during which the applications specific 

to the 3 Banken Group — say, our customer management system and electronic loan 

file — can be adapted to a new operating system. 

What big construction projects are in the pipeline for 2009? 

We want to focus mainly on extending our branch network. In addition, we will be building 

a new training centre in Pörtschach in the course of 2009. The seminar rooms currently 

located in our Head Office building on St. Veiter Ring will be moved to these new premises, 

and the freed-up space at Head Office will be allotted on the basis of a spatial concept that 

best meets the needs of our individual departments. Since Head Office is where most of 

our employees work and are going to be affected by building works, this project too will, 

of course, be particularly challenging.


management. Other projects dealt with carrying out the software adaptations that were 

needed during the successful launch of the Single European Payments Area (SEPA) and in 

connection with the various stages of Basel II’s implementation 

3BEG was also involved in some of the Bank’s key projects abroad, introducing counter 

operations in Slovenia and adding a new branch in Zagreb to the BKS Bank d.d. network. One 

important and carefully considered decision was not to use a common IT system in every 

region. Instead — to minimize follow-up costs — we use specific, national software solutions 

that have been adapted to the requirements and regulations in force in individual 

countries. In Slovenia and Croatia, we use products from software supplier HRC. Retail 

banking applications were added to our existing credit systems in Slovenia, where we also 

launched an online banking system. Our core banking software in Croatia was updated to 

the latest version. 

Preparations for our biggest project in the 2009 financial year — the Group-wide migration 

of all our PCs to Microsoft’s Vista operating system — were already gaining momentum in 

2008. 

Extensive construction work 

In recent years, BKS Bank has moved away from ugly, anonymous self-service foyers and 

adopted a new approach. Attractive architectural solutions — places for encounters, containing 

modern lounges, discrete advisory space and structures in entrance zones designed 

to encourage communication — are now standard at BKS Bank. 

BKS Bank’s Construction Group had a good year, successfully completing six reconstruction 

projects and five new buildings. Alongside smaller building projects like the redesigning 

of the foyers and garden at BKS Bank Head Office, a number of major projects were also 

rapidly carried out. At the same time, we were able to minimize our use of resources. Having 

been finished according to plan, Centrum Pörtschach was put to its intended use. (After 

a longer break, BKS Bank itself had acted as developer during this project.) This complex 

cost roughly €6 million. It includes an underground car park built for the municipality of 

Pörtschach as well as a number of stores that will be let to local businesses. Nonetheless, 

BKS Bank will be using much of the floor space. Besides our Pörtschach branch, which has 

already relocated to its new premises, a new, state-of-the-art training centre for BKS Bank 

staff was set up there in the first quarter of 2009. 

The completion, as planned, of BKS Bank d.d.’s branch in Zagreb marked the realization 

of an important project in the Croatian market. These premises, which also house BKSleasing 

Croatia d.o.o., occupy two storeys in Zagreb’s newest and tallest office high-rise, the 

Euro-Tower. Over 200 high-ranking members of Zagreb’s business community attended the 

opening. They were enthusiastic about the branch’s ambience — and the same applies to 

those who attended the opening of BKS Bank’s new customer counter in Slovenia. There 

Special national IT 

solutions are in place in 

Slovenia and Croatia. 

Changeover to a new 

operating system. 

A number of important 

construction projects 

are completed as 

planned in Austria . . . 

. . . and abroad. 

79

80 

Security standards are 

systemically raised to 

a financially prudent 

level. 

Operations continue 

to run smoothly during 

EURO 08. 


too, our highly motivated Construction Group succeeded in harmoniously blending BKS 

Bank’s customer lounge concept into our Slovenian Head Office in the Mides Building. 

Alongside these projects, the self service and counter areas at our Regional Head Office in 

Graz were redesigned and a number of branches in Klagenfurt — Radetzkystrasse, St. Veiter 

Ring and Viktring — were refurbished in line with our new design standard. In addition, we 

built new branches in Weiz, Deutschlandsberg and Wien-Meidling. 

Maximum security 

Discretion and data security are important. Indeed, customers rightly expect security of 

every kind from a bank. not least for this reason, BKS Bank feels that it is important to have 

the right answer to every security challenge. For example, as soon as it launched its online 

banking services, BKS Bank opted to use the SecurityCard, which makes phishing virtually 

impossible. A new generation of this computer in credit card form was introduced in the 

year under review. It is not just customers’ online banking data that have been made safe. All 

our IT servers also use the latest firewall systems. Our website and its many interactive elements 

are not connected to any servers where customer information is stored. Every BKS 

Bank branch has effective surveillance systems with high-resolution cameras. This year, we 

installed a new access control system at Head Office that asks for identification every time 

someone enters a new area, creating a “Chinese Wall” to prevent unauthorized access to 

so-called confidentiality areas. 

A number of outlets, including the branch on Neuer Platz in Klagenfurt, were in the immediate 

vicinity of stadiums or fan zones during the EURO 08 European Football Championship. 

To cope with this problem, BKS Bank’s security personnel developed an extensive 

branch protection concept at the beginning of the year. In addition to the employment of 

a supplementary security service, it included (among other things) changes to customer 

lounge opening times. Fortunately, it soon became clear that many of the precautions were 

unnecessary, so we were able to reduce them to a minimum even before the matches in 

Klagenfurt were over.


Staff Report 

It is, above all, BKS Bank’s employees who give it its reputation as a responsible partner in all 

things financial. We therefore make a point of employing highly motivated and well trained 

staff able to demonstrate their skill, openness and professionalism to our customers. 

It is our declared goal to highlight BKS Bank as an attractive employer, and we did so very 

successfully during the year under review. This was underscored by the total of over 1,900 

unsolicited applications for jobs (including applications for work experience) that reached 

us. To enable us to process the many job applications as efficiently as possible, our Austrian 

regional head offices were also more closely tied in to the staff selection process. 

Because of BKS Bank’s rapid growth abroad, we have also appointed personnel officers at 

our foreign units. In foreign markets, BKS Bank mainly employs local staff who are most 

familiar with local business practices, demand in the market and customers’ needs. This 

policy has already proven very effective in Slovenia, Croatia and Slovakia. BKS Bank is committed 

to the individuality of its employees and their diverse corporate cultures. 

When looking for skilled young staff, Human Resources has gone beyond depending on 

recommendations and references and stepping up its presence at universities. It has also 

been taking the opportunity to present BKS Bank to future “high potentials” at job fairs. We 

have, moreover, been helped by the many reports in the media that have depicted BKS Bank 

as a family-friendly enterprise as well as by events during which we were able to present 

InTErVIEW WITH WErnEr LAUrE, HEAD OF HUMAn rESOUrCES 

Staff costs are BKS Bank’s biggest item of expense. Do you sometimes consider letting staff go 

in times of financial crisis? 

BKS Bank has always strived to be a responsible employer to its staff. For this reason, even 

when times are hard, we do not dismiss staff. However, we are very selective when we 

hire new staff, so natural staff attrition does save us money. 

Will staff still have access to the same extensive training programme in 2009? 

We have not cut back on our training programme for 2009. Highly qualified staff are key 

to the success of a service provider like BKS Bank. The people who work for us are not 

just expert professionals. They have also received the requisite personal development 

training. This is why it goes without saying that we will continue to offer them seminars 

like our coaching programme, the mentoring project for young management personnel 

and a raft of other training opportunities during 2009. 

BKS Bank is an 

attractive employer. 

Cultural diversity as 

a basis for innovation 

and creativity. 

Carefully targeted 

recruitment processes 

are used to fill key 

positions. 

81

82 

BKS Bank has always 

been a generous 

provider of fringe 

benefi ts. Familyfriendly 

personnel 

policies are part of its 

corporate culture. 

1,200 

1,000 


800 

700 

600 

500 

400 

best-practice examples like our benefits and support for older employees, our Kinki crèche 

and our Durch die Bank gesund (banking on health) scheme. 

The BKS Bank Group employed an average of 860 people (full-time equivalents) during 

2008, compared with 803 in 2007. In terms of the number of “heads” in the workforce, 

it already employed over 1,000 people at the end of 2008, an average of 118 of whom 

were working abroad. BKS Bank is, above all, an important employer in its core Carinthian 

market. 

The average period of service at BKS Bank has always been high, coming to about 15.5 

years in 2008. Fifty-seven of our colleagues celebrated jubilees during the 2008 financial 

year. Seventeen of them had already been working for BKS Bank for 35 years, and six for 

40 years. In addition to a good work climate, employees particularly value our familyfriendliness 

and fringe benefits, which include food vouchers, commuting allowances and 

supplementary health insurance cover. As in prior years, employees were able to buy BKS 

Bank shares on favourable terms within the scope of a special staff shareholding scheme. In 

addition, we donated 900 ordinary BKS bank shares to BKS-Belegschaftsbeteiligungsprivats 

tiftung, a foundation that exists exclusively to pass on directly to employees their earnings 

from investing in BKS Bank. Finally, the Kinki crèche, our all-day or half-day facility for the 

small children of our employees, continued to live up to its outstanding reputation. Combined 

with our flexible part-time working models, it made it a little easier for 20 mothers 

and fathers to cope with the double burden of being a parent and having a career. 

Historical records of staff numbers and BKS Bank’s assets going back to 1991 document an 

impressive uptrend that has, above all, been driven by the dedication of our highly motivated 

workforce, the exploration of potential for rationalization and the optimization of processes 

HUMAn rESOUrCES AnD ASSETS 

1991 to 2008 

Average number of employees Consolidated assets, €bn 

6.0 

5.0 

4.0 

3.0 

2.0 

1.0 

0


and procedures. The increase in the number of staff in 2008 was relatively small compared 

with our strong expansion in the market, at just 57 (full year equivalents). At the same time, 

BKS Bank’s assets have grown significantly, increasing to nearly €6 billion. 

Professional banker training has made an important contribution to this increase in our 

efficiency by creating excellent foundations for an employee’s continuing professional 

development. During the year under review, BKS Bank spent roughly €1.5 million on 

further training for staff (including the costs of lost work time). Our extensive training 

programme consisted of 105 BKS Bank seminars and 80 seminars held by outside providers. 

All employees benefited. Young staff members received their basic banker training at 

BKS-Colleg. Young management staff went through a multi-stage development process, 

and the skills of customer advisors in the corporate and business banking segment were 

honed by the Consulting training programme. Senior management personnel think highly 

of the Coach training programme, which is particularly team and colleague orientated. Personality 

development — from time management to communication, style and etiquette 

courses — was an important focus of the training process, and we also emphasized language 

training to facilitate the adoption of English as our official Group language. 

Stiff competition in the banking sector accelerated the steady process of structural change 

within BKS Bank. We focused particular attention on orderly succession planning and staffing 

processes and on the seamless exchange of experience and opinions as prerequisites 

for balanced human resources development in line with BKS Bank’s needs. For instance, 

each new colleague was assigned a mentor from his or her team, and numerous branch staff 

spent a number of days at Head Office getting to know the various departments and the 

processes occurring within them. Once they have completed their training, our trainees 

become sought-after employees in every department and at regional head offices, and 

thanks to their in-depth professional skills, branches think very highly of the apprentices 

we have trained. At the same time, older staff members have proven their effectiveness as 

seminar leaders, letting them pass on their professional expertise. 

7 

6 

8 

5 

9 

10 

4 

USE OF HUMAn rESOUrCES AT THE EnD OF 2008 

3 

1 

2 

1 Head Office 29% 

2 Seconded staff 4% 

3 Klagenfurt regional Head Office 18% 

4 Villach Regional Head Office 10% 

5 Graz Regional Head Office 11% 

6 Spittal Regional Head Office 3% 

7 Burgenland Regional Head Office 7% 

8 Vienna Regional Head Office 4% 

9 Branches in Slovenia 3% 

10 Other Group members in 

Austria and abroad 11% 

The active promotion 

of young employees 

and their training as 

qualifi ed banking 

and management 

personnel are core 

elements of our 

personnel policies. 

83

84 

The Bridge Building 

Project is creating ties 

between different 

worlds of work. 

Successful 

continuation of the 

“Grow with us!” image 

campaign. 

Our advertising 

line signals product 

continuity and 

enhanced customer 

service standards. 


A number of senior staff at BKS Bank took part in our Bridge Building Project. The aim of 

this remarkable initiative was to permit exchanges of experience between senior personnel 

in for-profit and not-for-profit enterprises as they shadowed each other at work for a 

week. Plunging into other people’s professional worlds and facing the challenge of coping 

with different sorts of problems during these proverbial but much too seldom excursions 

outside the box gave every participant a valuable opportunity to broaden his or her professional 

and personal horizons. For instance, one senior member of staff dipped into the 

world of a probation officer, while another gained insight into a residential project for young 

people organized by SOS Children’s Villages. In return, the CEO of the welfare and social 

charity Diakonie Kärnten, Walter Pansi, sent several days sharing the work of the Management 

Board. 

Communication 

Communicating with customers 

In recent years, we have been endeavouring — with success — to give the BKS Bank brand 

an even stronger position in the market, and this process continued in 2008. Our communication 

activities centred on our slogan “Grow with us!” One of the undoubted highlights 

was a TV advert in the first quarter that did a great deal to promote BKS Bank’s image as 

the David among the banking Goliaths. BKS Bank continued this campaign in its foreign 

markets using the printed media and posters. 

In the spring of 2008, we took advantage of the start of the homebuilding season to attract 

new home loan customers with the help of prize draws. Each BKS Bank regional Head 

Office held a prize draw for the value of a square metre of residential space among all 

the property owners who came to it for home finance advice. This enabled us to address 

numerous prospective customers who then ended up taking out new loans. Our alliance 

with the Wüstenrot building and loan association has now lasted 39 years. Together with 

Gerlinde Puck, the lucky customer, and Wüstenrot management board member Helmut 

Köllensperger, we celebrated the signing of our 100.000 th building and loan agreement. 

We held numerous special events during the year. They proved very popular and were 

attended by roughly 5,800 customers. They ranged from the Alpenfahrt vintage car rally 

to art openings and cultural events like the Trigonale and Carinthian Summer to our popular 

subsidy breakfasts for company proprietors. Our regional Head Office in Styria celebrated 

its 25 th anniversary, and, ideally, we were able to present its rebuilt foyer and newly 

designed counter area to our guests at the ceremony. 

During the bigger events held by BKS Bank, we did our best to liven up information that was 

tightly packed and therefore hard to digest in an entertaining and varied way. For instance, 

customers from Vienna and Burgenland were given useful and refreshing tips on self-


motivation by TV personality and former downhill ski racer Armin Assinger. rainer Petek 

lectured at a number of regional head offices, telling audiences how to use the “north 

Face Principle” employed by extreme athletes to further their own personality development. 

Chef Peter Mayr introduced us to “energy cuisine”, and in a series of lectures, 

choclatier Zotter took us behind the scenes to reveal its special world of the senses. The 

Business Club’s opening events — during which Bang & Olufsen gave an impressive demonstration 

of how a hi-tech company can stand out from its competitors with the help 

of a successful synthesis of design and quality — were another highlight. The opening of 

our new branch in Ljubljana and the first branch of BKS Bank d.d. in Zagreb also attracted 

widespread interest. Our “unbankish”, lounge-like foyers found considerable favour with 

customers and staff alike as well as the many high-ranking personalities who attended the 

openings. 

In addition to selling its products and services through classical distribution channels like 

its branch network and by addressing customers directly during events, BKS Bank has for 

some years been stepping up its effort to acquire new business through the Internet. During 

the 2008 financial year, the online shop’s product line was broadened by the addition 

of a credit product, motor vehicle leasing, building and loan products and a pension and 

saving advice module. Rather than competing with the sales activities of our branches, 

these Internet products are a valuable complement to them. Our experience is that many 

customers mainly use the shop’s interactive elements to obtain preliminary information 

before visiting a BKS Branch for an advice session. For instance, the online credit module 

includes an integrated household budget calculator to help one match one’s loan application 

to one’s financial resources. Particularly frequent use was made of the possibility 

of ordering products directly and flexibly online, especially when it came to investing. 

InTErVIEW WITH HErBErT TITZE, HEAD OF THE OFFICE OF THE MAnAGEMEnT 

BOArD AnD COMMUnICATIOn 

Will BKS Bank be cutting back on its advertising in 2009? 

Our overall marketing strategy remains untouched. The emphasis at BKS Bank has always 

been on personal communication, whether during meetings with our customers or 

through events. We publicize special offers and products in adverts and at our branches. 

What are the key topics going to be in 2009? 

We want to show our customers that solid growth really can be achieved responsibly. Present 

developments are a clear argument in favour of our policy of sustainability. BKS Bank’s 

overriding principle has always been to take a long-term view rather than aiming for quick 

profits. The wisdom of this strategy is now becoming particularly evident. This is why we 

plan to present ourselves more than ever as a solid and reliable partner. 

A high-calibre 

programme of events 

for corporate and 

business banking 

and retail banking 

customers. 

Another chapter is 

added to our successful 

history as an Internet 

bank. 

85

86 

Our employees’ 

exceptional dedication 

is one of the keys to our 

success. 


We registered keen customer interest in our Online-Sparcard savings card, Online-Sparkonten 

savings accounts and Online-Bausparvertrag building and loan agreements, and the demand 

for Online-Gehaltskonto salary accounts was also on a par with 2007. 

In the course of the year under review, all of BKS Bank’s non-German language websites 

were thoroughly revamped. As a result, the Bank’s international online presence now 

boasts all the unmistakable features and content of our German language website, which 

can be found at http://www.bks.at. To make more use of the newsletter as a modern means 

of communication, we changed over to a new newsletter system at the end of 2008. Using 

it, we can now target customer information with greater accuracy. 

Communicating with staff 

Staff are key to the success of any service provider. BKS Bank believes that only a wellinformed 

employee will be a sufficiently motivated employee. We therefore see updating 

staff in detail about BKS Bank’s principal goals and plans during extensive briefing sessions 

held at least twice a year as one of our core tasks. This plays an essential part in strengthening 

employees’ sense of belonging to BKS Bank and enabling them to meet new challenges 

in a goal-orientated way, especially when the industry is going through hard times. To this 

end, we revised our Vision and Mission Statement, making it pithier and, in line with normal 

practice in BKS Bank’s various markets, translated it into the language of each country. 

In addition, our staff newspaper, Cocktail, is now also published in two languages in a 

mix of German and English. 

To give us a benchmark for measuring staff satisfaction, BKS Bank entered the A Great 

Place to Work – Austria’s Best Employer competition. We were ranked 26 th , which is very 

respectable for a new entrant, showing how proud a large majority of our staff are to work 

for BKS Bank. 

BKS Bank has always promoted the “we feeling”. Every regional Head Office organizes a 

raft of excursions and activities for staff in their free time. For instance, the employees at 

Burgenland regional Head Office visited the OrF Centre in Vienna, while Head Office staff 

and staff at Klagenfurt regional Head Office enjoyed a company outing to Trieste. Villach 

regional Head Office spent an eventful day in Upper Italy.


Sustainability Report 

As an important sector in any big economy, the degree to which the banking sector lives 

up to its corporate social responsibilities (CSR) in practice is particularly closely monitored 

by a variety of stakeholders, including, above all, investors and analysts. 

The entirety of BKS Bank’s business model is built on customer confidence. We are convinced 

that responsible action and financial success are mutually dependent, so we strive 

to strengthen this confidence with the help of special activities in the CSr field. In everything 

it does, BKS Bank therefore focuses on the consistent realization of its strategy for 

sustainability in the human resources, social and environmental fields. BKS Bank’s business 

policy is thus directed at making it a reliable and predictable partner to its customers 

and a dependable employer to its workforce and at delivering to its equity holders an 

appropriate return on their investment. 

Verantwortung zeigen (showing responsibility) is more than just the name of a project initiated 

by management consultants Strasser&Strasser in which BKS Bank is a committed 

participant. It is also the guiding principle underlying many of BKS Bank’s activities. Our 

operations in our Austrian and foreign markets centre on trust, reliability , transparency 

and sustainable customer value. In recent years, they have often been dismissed as conservative, 

boring and conventional, but in a financial year plagued by the financial markets 

crisis, it was (yet again) precisely this strategy that worked. 

The workforce 

BKS Bank is particularly committed to its most valuable asset, its workforce. Following 

the big media response caused by BKS Bank’s winning of the 2007 Nestor prize for the 

large Austrian enterprise that takes the best care of older staff, we added a number of new 

facets to our package of measures in 2008. The Durch die Bank gesund (banking on health) 

scheme was seamlessly followed by Relaxed durch die Bank (banking on relaxation). Some 

200 employees, or nearly a quarter of the total workforce, participated in this scheme. 

A so-called impulse test consisting of 26 questions about conditions at work, a survey of 

personal stress factors, an analysis of the respondent’s resources and a stress test carried 

out using biofeedback equipment showed that over three quarters of the participating 

employees were very good at taking pressure but that some suffered from high levels 

of inner tension. Every respondent in the Relaxed durch die Bank programme received 

personalized feedback to help him or her reduce, in a targeted way, high levels of stress 

caused by professional or environmental pressures. In addition, Dr. Stefan A. Bayer, BKS 

Bank’s occupational health practitioner, gave employees who did not take advantage of 

the checkups valuable advice about the early recognition and avoidance of burn-out symptoms 

in a stress management series written for the Cocktail staff newspaper. 

During 2008, a signification proportion of our staff in Carinthia took part in a study of the 

general state of health of the workforce carried out by a graduand in health management 

BKS Bank displays 

a consistent sense 

of responsibility for 

society, its workforce 

and the environment. 

Promoting staff health 

is a high priority. Staff 

are encouraged 

to develop a more 

balanced lifestyle in a 

way they can sustain. 

87

88 

BKS Bank’s reputation 

as a best-practice 

pioneer gives it a great 

deal of media attention. 


at the Fachhochschule Kärnten (Carinthian university of applied sciences). Among other 

things, this study also looked at the value placed on health and on BKS Bank’s health programme. 

The rate of response to the questionnaire was high, at over 80 per cent, reflecting 

the essential importance of these topics and the high level of acceptance of the actions 

taken by BKS Bank so far as part of its corporate culture. Despite the generally satisfactory 

state of health of our employees, some of them have not been able to escape the number 

one “civilization disease”, namely neck and back problems, especially after intensive 

computer use. We reacted immediately, setting up our Aufrecht durch die Bank (totally 

straight) programme for staff. This is a made-to-measure programme to strengthen one’s 

back muscles. We plan to put it into effect in the course of this 2009 financial year. 

Our CSR activities evoked considerable interest outside the Bank. Because of our reputation 

as a pioneer in the best-practice field, the media often ask BKS Bank’s senior personal 

to comment on family-friendly and female-friendly employment issues. Particular interest 

is frequently shown in our thriving Kinki crèche, which cares for the lively young offspring 

of our employees, in our flexitime models (flexible hours without core hours of work) and 

in our conviction, held for many years, that we can also master financially hard times without 

laying off staff. The response to our consistent evolution into a non-smoking bank has 

also been positive, and BKS Bank will soon be certified as a non-smoking business by the 

Austrian ministry of health. 

Society 

Small Wishes – Big Wishes was on the front of BKS Bank’s 2008 Christmas card, which was 

designed by pupils at Klagenfurt’s school for the severely disabled. Sadly, there are many 

InTErVIEW WITH HErTA STOCKBAUEr, MEMBEr OF THE MAnAGEMEnT BOArD 

BKS Bank is also going to have a financially challenging 2009. Is CSR the first area where you 

are going to be cutting costs? 

no. CSr and sustainability are not fair weather principles. We won’t just be fulfilling our 

social obligations when the sun is shining. When the economy is in a critical state, people 

with low incomes are particularly vulnerable. Our partnerships with organizations like 

Kärntner in Not (Carinthians in need) will therefore continue as before, and we will still be 

offering our staff schemes like Durch die Bank gesund. 

So nothing is going to change in 2009? 

No, quite the reverse. A lot of new things are going to happen. For instance, we are 

working on a Code of Conduct to help staff cope with exceptional situations. Similarly, 

we are now beginning to focus more on energy efficiency, which will have an impact on 

our construction projects and help staff use energy more sparingly.


people for whom even small wishes are wishes that cannot be satisfied. BKS Bank therefore 

supported a variety of charitable organizations, including the Kleine Zeitung newspaper’s 

Kärntner in Not (Carinthian in need) campaign, and during the 2008 financial year, 

BKS Bank was pleased to be invited by Styria management board member Horst Pirker 

to become a full partner of this successful initiative. BKS Bank’s sponsorship is making it 

possible to employ an additional staff member to ensure that all the donations made to 

Kärntner in Not go to the needy and do not have to be used to cover administrative costs. 

The TrIGOS CSr initiative honours companies whose special commitment in the 

workplace, society, market or ecology categories transcends the requirements of the 

law. Encouraged by the response to TrIGOS Carinthia in 2007, we decided to award a 

regional TrIGOS in Styria as well in 2008. This initiative was warmly received. In addition 

to the institutions that acted as TrIGOS Austria and TrIGOS Carinthia partners 

— Wirtschaftskammer (Austrian Federal Economic Chamber), Industriellenvereinigung 

(Austrian industrialists’ association), SOS Children’s Villages, Caritas, the Red Cross, 

Umweltdachverband, UBIT, respACT, the Kleine Zeitung newspaper, Strasser&Strasser — the 

Wirtschaftsinitiative Nachhaltigkeit sustainability initiative, Taten statt Worte (action not 

words), ECO World Styria and Österreichische Netzwerk Wirtschaftsethik (Austrian business 

ethics network) created a very strong platform in Styria that actively organized the competition. 

It gave some 100 companies in Carinthia and Styria an opportunity to take the 

stage under the motto Do Good and Talk About It. 

Another focus of our CSr activities was on combating the increase in crime. Although BKS 

Bank is a comparatively small cog in the global market, its global links mean that it is often 

confronted with dubious wheelings and dealings. Corruption, tax evasion, insider trading, 

market manipulation and money laundering are topics than may affect our employees in 

their day-to-day professional life. They are therefore given regular training on these issues, 

and relevant manuals in the Internet help them detect suspicious activities and prevent 

irregularities. At the same time, BKS Bank does everything necessary to shield its staff 

from direct encounters with criminals, so every branch has a state-of-the-art alarm system 

and cameras to deter potential bank robbers and confidence tricksters. 

TrIGOS PrIZEWInnErS In CArInTHIA AnD STYrIA 

TRIGOS Category: 

The Workplace 

Deakon Degen 

Florian Lugitsch KG 

Hotel Hochschober 

Infineon Technologies Austria 

Sappi Austria 


Society 

Parkhotel Pörtschach 

Saubermacher 

Stadtwerke Judenburg 

Weltweitwandern 


The Market 

Mangolds Restaurant 

KWB Biomasseheizungen 

Zotter Schokolademanufaktur 

BKS Bank takes its 

charity work very 

seriously. 

BKS Bank supports 

the supra-regional 

TrIGOS CSr initiative 

in Carinthia and Styria. 


Ecology 

ATRIO BetriebsgesmbH 

Embatex AG 

Feistritzwerke Steweag 

Frischehof Robier 

Schirnhofer GmbH 

89

90 

High corporate 

ecology awareness. 

Continuing recession 

in the United States 

and the eurozone, 

and a sharp rise in 

unemployment also 

affecting Austria. 

No relief in the 

international stock 

markets. Key interest 

rates at their lowest in 

years. 


The environment 

As a service provider, BKS Bank’s scope for ecologically correct action is relatively limited. 

Nonetheless, we do frequently grasp opportunities to demonstrate our corporate 

social responsibility in the environmental domain. We do so just as consistently when 

completing construction projects as when we are vetting corporate and project finance 

applications (e.g. along the renewable energy value chain). Environmental protection has 

become an indispensable element of key system processes involved in our facility management, 

construction, sourcing and logistics activities. It now goes without saying that BKS 

Bank has a sophisticated waste management system, opts for low-emission equipment, 

uses resources as sparingly as possible and, as a rule, asks staff to use public transport for 

business trips. 

Outlook for 2009 

Forecasters are unusually uncertain about the global economic outlook, but one thing is 

certain. The United States, the eurozone and their main trading partners are still exposed 

to a massive economic downturn that does not yet appear to have bottomed out. GDP in 

the United States and the eurozone is expected to decline by 1.7 and 1.2 per cent, respectively, 

in 2009, and GDP growth in the leading Asian economies is also slowing significantly. 

Recently, higher risk aversion has also triggered doubts about the countries of Central 

and Eastern Europe. WIFO expects Austria’s real GDP to fall by about 0.5 per cent in 

2009. According to recent economic analyses, further cuts in output are, above all, to be 

expected among exporters in the material goods sector. This will considerably increase 

short-time working. The rapid rise in the number of registered unemployed in Austria to 

over 300,000 at the end of February was particularly worrying. 

The ECB believes that the sharp drop in raw material prices, including above all the price 

of crude oil, which has now stabilized at a low level of about US$45 a barrel, could soon 

boost real disposable incomes and, therefore, domestic demand in the eurozone. At the 

moment, though, economic downside risks predominate, especially given that the volatility 

of the financial markets increased rapidly in the first two months of 2009. The downward 

slide of the major stock markets’ key indices has accelerated dramatically. By the end 

of February, further bad news from the financial sector and disappointing economic numbers 

had depressed both the Dow Jones and Japan’s Nikkei to historical lows of 7,041.74 

and 7,568.42 points. To date, Europe’s stock markets have also been in trouble. Sharply 

falling prices caused the eurozone’s key index — the Euro Stoxx 50 — to slump to 1,976.23 

points, which was its lowest level in a good 12 years. Following weak profit reports from a 

number of banks, financial stocks in particular have recently been up for sale. By the end 

of February, Austria’s ATX had fallen by about 67 per cent to 1,481.67 points, following 

a 52-week high of 4,539.93 points on 19 May 2008. On the other hand, the “crisis currency” 

— gold — briefly topped US$1,000 per fine ounce for the first time since March


2008 and was trading at US$939.80 at the time of writing. In the euro money market, 

both the EONIA and the 3-month euribor fell sharply in response to the ECB’s latest rate 

cut, taking them to 1.306 and 1.825 per cent, respectively, by the end of February. At the 

same time, in the Austrian bond market, the benchmark yield on long-term treasuries 

increased by roughly 30 basis points to 4.19 per cent. The potentially stimulating effect 

of the latest American economic package on economic growth has clearly already been 

priced in, weakening the euro from US$1.3866 to US$1.2644 since the beginning of the 

year. To date, the Swiss franc has confirmed its importance as a safe haven, staying almost 

unchanged at SFR1.4841/€. 

As turbulence in the market continues, the business outlook for banks remains 

gloomy. Nonetheless, we look to the future with a degree of optimism. We will remain 

true to our responsible strategy for growth. We will be prioritizing credit risk management, 

the synergy and efficiency orientated review of our organizational structures, the 

continuing refinement of our liquidity management system and the strengthening of 

our capital base. Our agenda for 2009 also includes building or modernizing a series of 

branches in our various markets, launching securities operations in Slovenia and extending 

our retail banking operations in Croatia. 

In a weakened economic environment, BKS Bank is at a big competitive advantage. We 

have a robust business model, a solid capital and financial base and a strong market position 

in our core business segments. Regardless of crisis conditions in the markets and the 

bleak outlook for the coming months, we see safeguarding the legitimate interests of our 

customers and equity holders as an absolute priority. However, the difficult conditions 

do not allow us to predict our 2009 results at this juncture. We will do everything we can 

to minimize the adverse effects of changed conditions on our business performance. In 

this challenging 2009 financial year, we will continue to strive for a profit that allows BKS 

Bank AG to recommend an attractive dividend distribution to the AGM at the same time 

as augmenting BKS Bank’s reserves in order to increase our enterprise value for the benefit 

of our equity holders. 

BKS Bank will remain 

true to its responsible 

business policies in 

2009. 

91

92 

Consolid 

Financial 

Statemen

ated 

ts 2008 

Income Statement for the 2008 Financial Year 

Balance Sheet as at 31 December 2008 

Statement of Changes in Equity 

Cash Flow Statement 

Notes to the Consolidated Financial Statements 

Closing remarks by the Management Board 


Auditors’ Report 

96 

97 

98 

99 

100 

128 

129 

130 

93

94 Overview / Management Board / Investor Relations / Group Management Report / Consolidated Financial Statements 08 / Additional Notes 

nOTES TO THE COnSOLIDATED FInAnCIAL STATEMEnTS 

Page 

Details of the Income Statement 

(1) Net interest income 104 

(2) Charge for impairment losses on loans and advances 104 

(3) Net fee and commission income 104 

(4) Net trading income 105 

(5) General administrative expenses 105 

(6) Other operating income net of other operating expenses 105 

(7) Net income from financial assets designated as at fair value through profit or loss (FV) 105 

(8) Net income from available-for-sale financial assets (AfS) 105 

(9) Net income from held-to-maturity financial assets (HtM) 105 

(10) Income tax expense 

Details of the Balance Sheet 

105 

(11) Cash and balances with the central bank 106 

(12) Receivables from other banks 106 

(13) Receivables from customers 106 

(14) Impairment allowance balance 107 

(15) Trading assets 107 

(16) Financial assets designated as at fair value through profit or loss 107 

(17) Available-for-sale financial assets 108 

(18) Held-to-maturity financial assets 108 

(19) Investments in entities accounted for using the equity method 108 

(20) Intangible assets 108 

(21) Property and equipment 109 

(22) Investment property 109 

(23) Deferred tax assets 109 

(24) Other assets 109 

(25) Payables to other banks 110 

(26) Payables to customers 110 

(27) Liabilities evidenced by paper 110 

(28) Trading liabilities 111 

(29) Provisions 111 

(30) Deferred tax liabilities 111 

(31) Other liabilities 112 

(32) Subordinated debt capital 

Additional disclosures required by IFRSs 

112 

(33) Fair values 112 

(34) Investments in associates 113 

(35) Transactions with associates 114 

(36) Transactions with subsidiaries 114 

(37) Segment reporting 114 

(38) Non-interest assets 115 

(39) Subordinated assets 115 

(40) Balances in foreign currencies 115 

(41) Contingent liabilities and commitments 115 

(42) Investments in subsidiaries and selected other equity investments 116 

(43) Events after the balance sheet date 117 

(44) Collateral for liabilities contained in assets 

Disclosures required by Austrian law 

117 

(45) Employees, boards and officers 


117 

(46) Management of overall bank risk 118 

(47) Balance of derivatives outstanding 124


Notes on IFRSs 

BKS Bank prepared its Consolidated Financial Statements for the 2008 financial year in accordance with the provisions of 

the IFRSs and the interpretations by the International Financial Reporting Interpretations Committee (IFRIC) as exempting 

consolidated financial statements within the meaning of § 59a BWG (Austrian banking act) in conjunction with § 245a UGB 

(Austrian enterprises code). During the preparation of these Consolidated Financial Statements, all standards whose application 

was mandatory during the financial year were applied. Comparative figures for the previous year were also based on the 

relevant standards. 

Austrian enterprise law is founded on the principle of business prudence. It focuses primarily on maintaining capital value and 

protecting creditors. The IFrSs, whose application has been mandatory for listed enterprises within the EU since 2005, give 

priority to the information needs of investors facing investment decisions rather than emphasizing the protection of creditors. 

Consequently, annual financial statements prepared in accordance with IFRSs must present an entity’s assets, liabilities 

and financial position, the results of its operations and its cash inflows and outflows according to actual circumstances. They 

comprise a balance sheet, an income statement, a statement of changes in equity, a cash flow statement, statements regarding 

recognition and measurement policies and explanatory notes, inclusive of a segment report. To enhance the informational value 

of annual financial statements, the IASB (International Accounting Standards Board) is placing growing emphasis on measurement 

to fair value. This measurement principle represents a weakening of the prudence principle in favour of the measurement 

of profit on an accrual basis and adherence to the going-concern principle, the main focuses being on intelligibility, relevance 

and comparability. 

During the 2008 financial year, we made preparations for the application of IFrS 8 for the first time. This standards is effective 

for financial years beginning on or after 1 January 2009. IFrS 8 has re-regulated segment reporting. The primary difference is 

that reporting segments must now be based on internal management arrangements (the management approach). However, our 

segmentation into Corporate and Business Banking, Retail Banking and Financial Markets already satisfied the new requirements, 

so no material change has taken place. 

Amendments to IAS 39 in the wake of the financial crisis 

Previously, IAS 39 prohibited re-classifying a financial instrument designated as at fair value through profit or loss into another 

category while it is held. However, during the financial crisis, assets in the trading portfolio held for the purpose of selling them 

in the near term inevitably became assets held for a longer period. It was therefore decided that, under certain circumstances, 

it should become permissible under IAS 39 to reclassify assets held for trading into another category. However, this reclassification 

option only exists for assets that are non-derivative (e.g. for securities). The amendment had no practical effect on 

BKS Bank because it did not and will not hold any such assets in its trading portfolio. 

Unless stated otherwise, all figures in the Notes to the Consolidated Financial Statements that follow are in thousands of euros (€k). 

95

96 


Income Statement of the BKS Bank Group 

for the 2008 financial year 

FULL YEAR 

€k Note 2008 2007 +(-) Change, % 

Interest income 341,669 282,274 21.0 

Interest expenses (225,770) (187,160) 20.6 

Net income from investments in entities accounted for using 

the equity method 

14,308 13,494 6.0 

Net interest income (1) 130,207 108,608 19.9 

Charge for impairment losses on loans and advances 

Net interest income after impairment losses on 

(2) (19,996) (19,220) 4.0 

loans and advances 110,211 89,388 23.3 

Fee and commission income 44,321 49,429 (10.3) 

Fee and commission expenses (3,514) (4,569) (23.1) 

Net fee and commission income (3) 40,807 44,860 (9.0) 

Net trading income (4) 1,408 1,783 (21.0) 

General administrative expenses (5) (87,863) (82,806) 6.1 

Other operating income net of other operating expenses (6) 2,930 2,092 40.1 

Net income from financial assets (FV) (7) (5,063) 2,784 >100 

Net income from financial assets (AfS) (8) (17,989) 1,466 >100 

Net income from financial assets (HtM) (9) 0 (17) >100 

Profit for the year before tax 44,441 59,550 (25.4) 

Income tax expense (10) (2,526) (8,784) (71.2) 

Profit for the year 41,915 50,766 (17.4) 

Minority interests in profit for the year (1) (4) (75.0) 

Consolidated net profit 41,914 50,762 (17.4) 

qUArTErLY rEVIEW 

€k 2008 2008 2008 2008 2007 

Q 4 Q 3 Q 2 Q 1 Q 4 

Interest income 92,486 88,542 81,815 78,826 77,531 

Interest expenses 

Net income from investments in entities accounted 

(58,006) (59,821) (54,268) (53,675) (52,749) 

for using the equity method 3,606 3,410 3,332 3,960 3,890 

Net interest income 38,086 32,131 30,879 29,111 28,672 


Net interest income after impairment losses on 

(2,360) (5,936) (7,336) (4,364) (839) 

loans and advances 35,726 26,195 23,543 24,747 27,833 

Net fee and commission income 9,877 9,986 9,651 11,293 11,832 

Net trading income 378 (360) 836 554 406 

General administrative expenses 

Other operating income net of other operating 

(24,112) (21,904) (20,942) (20,905) (23,447) 

expenses 1,112 250 802 766 645 

Net income from financial assets (FV) (4,879) (1,424) 2,639 (1,399) (199) 

Net income from financial assets (AfS) (15,250) (1,229) (710) (800) (76) 

Net income from financial assets (HtM) 0 0 0 0 (17) 

Profit for the period before tax 2,852 11,514 15,819 14,256 16,977 

Income tax expense 720 8 (1,700) (1,554) (4,016) 

Profit for the period 3,572 11,522 14,119 12,702 12,961 

Minority interests in profit for the period (1) 0 0 0 2 

Profit for the period after minorities 3,571 11,522 14,119 12,702 12,963


Balance Sheet of the BKS Bank Group as at 31 December 2008 

ASSETS 

€k Note 31/12/2008 31/12/2007 +(-) Change, % 

Cash and balances with the central bank (11) 69,235 80,822 (14.3) 

Receivables from other banks (12) 406,073 880,399 (53.9) 

Receivables from customers (13) 4,282,276 3,657,909 17.1 

– Impairment allowance balance (14) (96,178) (96,281) (0.1) 

Trading assets (15) 7,310 11,206 (34.8) 

Financial assets designated as at fair value through profit or loss (16) 127,462 71,634 77.9 

Available-for-sale financial assets (17) 344,021 398,116 (13.6) 

Held-to-maturity financial assets (18) 460,115 385,185 19.5 

Investments in entities accounted for using the equity method (19) 231,907 227,065 2.1 

Intangible assets (20) 14,730 13,887 6.1 

Property and equipment (21) 73,143 67,943 7.7 

Investment property (22) 17,589 16,943 3.8 

Deferred tax assets (23) 14,311 9,584 49.3 

Other assets (24) 23,701 28,277 (16.2) 

Total assets 5,975,695 5,752,689 3.9 

EqUITY AnD LIABILITIES 

€k Note 31/12/2008 31/12/2007 +(-) Change, % 

Payables to other banks (25) 1,415,975 1,396,733 1.4 

Payables to customers (26) 3,493,121 3,330,020 4.9 

Liabilities evidenced by paper (27) 211,683 251,543 (15.8) 

Trading liabilities (28) 1,658 1,948 (14.9) 

Provisions (29) 82,738 80,512 2.8 

Deferred tax liabilities (30) 7,407 6,779 9.3 

Other liabilities (31) 58,141 34,399 69.0 

Subordinated debt capital (32) 240,301 200,219 20.0 

Equity 464,671 450,536 3.1 

Equity after minorities 464,660 450,509 3.1 

Minority interests in equity 11 27 (59.3) 

Total equity and liabilities 5,975,695 5,752,689 3.9 

EARNINGS AND DIVIDENDS PER SHARE 

2008 2007 

Average number of shares in issue 4,609,943 4,590,713 

Dividend per share, € 1.50 1.50 

Earnings per share, € (diluted and undiluted) 9.10 11.06 

Earnings per share compares consolidated net profit with the average number of no-par shares (Stückaktien) in issue. In the 

period under review, earnings per share and diluted earnings per share were the same because no financial instruments with a 

dilution effect on the shares were outstanding. 

97

98 

Statement of Changes in Equity 

EqUITY AFTEr MInOrITIES 

€k Subscribed 

Capital 

Capital 

Reserves 

Retained 

Earnings 

Balance of 

Gains and 

Losses Taken 

to Equity 

Profit for the 

Year 

Equity 

At 1 January 2008 50,000 40,736 289,796 19,215 50,762 450,509 

Distribution (6,835) (6,835) 

Transferred to retained 

earnings 

43,927 (43,927) 0 

Profit for the year 41,915 41,915 

Exchange differences 649 649 

Gains and losses taken to equity (25,756) (25,756) 

Other changes 4,178 4,178 

– arising from use of the equity method (6,824) 

– arising from changes in treasury shares 11,083 

At 31 December 2008 50,000 40,736 338,550 (6,541) 41,915 464,660 

EqUITY AFTEr MInOrITIES 


€k Subscribed 

Capital 

Capital 

Reserves 

Retained 

Earnings 

Balance of 

Gains and 

Losses Taken 

to Equity 

Profit for the 

Year 

Equity 

At 1 January 2007 50,000 40,736 267,235 19,382 39,012 416,365 

Distribution (6,957) (6,957) 

Transferred to retained 

earnings 32,055 (32,055) 0 

Profit for the year 50,762 50,762 

Exchange differences 315 315 

Gains and losses taken to equity (167) (167) 

Other changes (9,809) (9,809) 

– arising from use of the equity method (2,236) 

– arising from changes in treasury shares (7,458) 

At 31 December 2007 50,000 40,736 289,796 19,215 50,762 450,509 

The 68 th AGM on 15 May 2007 voted to authorize capital of €10.0 million (nominal), which corresponds to 936,000 shares. 

Gains and losses taken to equity broke down as follows: 

cash-flow hedge reserve: €0 thousand (2007: negative €735 thousand); 

available-for-sale reserve: negative €25,756 thousand (2007: €568 thousand).


Cash Flow Statement 

CASH FLOWS 

€k 2008 2007 

Profit for the year before minorities 

non-cash positions in profit for the year: 

41,915 50,766 

– Depreciation, amortization and charge for impairment losses on receivables 

and property and equipment 

21,401 20,495 

– Changes in provisions 6,834 8,724 

– Gains and losses on disposals 1,167 (1,106) 

– Change in other non-cash items 135 (25,612) 

Subtotal 

Change in assets and liabilities arising from operating activities 

after correction for non-cash items: 

71,452 53,267 

– Receivables from customers and other banks, effect of using the fair value option (211,273) (396,299) 

– Trading assets 3,896 (15) 

– Other assets 3,333 (5,819) 

– Payables to customers and other banks 182,343 536,670 

– Liabilities evidenced by paper (39,860) 21,466 

– Trading liabilities (290) (1,428) 

– Provisions and other liabilities 14,991 2,597 

Net cash from operating activities 

Proceeds from: 

24,592 210,439 

– Sales of financial assets and property and equipment 

Outlay on: 

104,182 112,792 

– Purchases of financial assets and property and equipment (184,663) (293,166) 

– Acquisition of subsidiaries (28) (27,842) 

Net cash from (used in) investing activities (80,509) (208,216) 

Dividend distributions (6,835) (6,957) 

Subordinated liabilities and other financing activities 51,165 4,700 

Net cash from (used in) financing activities 44,330 (2,257) 

Cash and cash equivalents at end of previous period 80,822 74,640 

Change in the scope of consolidation 0 6,216 

Net cash from operating activities 24,592 210,439 

Net cash from (used in) investing activities (80,509) (208,216) 

Net cash from (used in) financing activities 44,330 (2,257) 

Cash and cash equivalents at end of period 69,235 80,822 

Taxes, interest and dividends 

– Income tax paid 6,057 5,633 

– Interest received 335,589 272,717 

– Interest paid 226,101 184,743 

– Dividends received 1,324 1,128 

Cash and cash equivalents are recognized in the line item Cash and balances at the central bank. 

99

100 


Notes to the Consolidated Financial Statements of BKS Bank 

Principal accounting policies 

I. General information 

The Annual Financial Statements of the BKS Bank Group were prepared in accordance with the provisions of the IFRS standards 

published by the IASB (International Accounting Standards Board) applicable as at the reporting date and as adopted by the 

EU. Account was also taken of the relevant interpretations by the International Financial Reporting Interpretations Committee 

(IFrIC/SIC). The Management Board of BKS Bank AG signed the Consolidated Financial Statements on 6 March 2009 and approved 

them for submission to the Supervisory Board. The Supervisory Board has the task of examining the Consolidated Financial Statements 

and stating whether it approves the Consolidated Financial Statements. 

II. Recognition and measurement 

Scope of consolidation 

Consolidated: 

– BKS Bank AG, Klagenfurt 


– BKS-Leasing Gesellschaft m.b.H., Klagenfurt 

– BKS-Immobilienleasing Gesellschaft m.b.H., Klagenfurt 

– BKS-leasing d.o.o., Ljubljana 

– BKS-leasing Croatia d.o.o., Zagreb 

– BKS-Leasing a.s., Bratislava 1 

– IEV Immobilien GmbH, Klagenfurt 

– Immobilien Errichtungs- u. Vermietungsgesellschaft m.b.H. & Co. KG, Klagenfurt 

– BKS Zentrale-Errichtungs- u. Vermietungsgesellschaft m.b.H., Klagenfurt 

– BKS Hybrid alpha GmbH, Klagenfurt 2 

Accounted for using the equity method: 

– Oberbank AG, Linz 

– Bank für Tirol und Vorarlberg AG, Innsbruck 

– Alpenländische Garantie-Gesellschaft m.b.H., Linz 

– Accounted for using the equity method, Linz 

1 BKS-Leasing a.s. makes up a subgroup together with BKS-Finance s.r.o. 

2 BKS Hybrid alpha GmbH, Klagenfurt, which had been formed in September 2008, was deconsolidated as of 1 October 2008. This 

company is wholly-owned by BKS Bank AG . Its object is to issue hybrid bonds and use the proceeds from such issuances to 

purchase the supplementary capital bonds of BKS Bank AG. 

Consolidation policies 

All material subsidiaries directly or indirectly under the control of BKS Bank were accounted for in the Consolidated Financial 

Statements. During the elimination of investments in and equity of subsidiaries on consolidation, an entity’s cost was compared 

with (the Group’s interest in) the entity’s remeasured equity. Materiality was judged applying common, Group-wide criteria. The 

principal criteria of materiality were the assets, earnings and size of workforce of the entity concerned. 

These Consolidated Financial Statements are thus based on the separate financial statements of all the consolidated entities, 

which were prepared applying common, Group-wide policies. Material associates were accounted for using the equity 

method. All other equity investments were classified as Available-for-sale financial assets and, if their fair value could not be 

reliably measured, recognized at cost. 

Foreign currency translation 

The Annual Financial Statements were prepared in euros. Assets and liabilities denominated in foreign currencies were generally 

translated using the market exchange rates ruling at the balance sheet date. The annual financial statements of subsidiaries that 

were not prepared in euros were translated using the modified closing rate method. Assets and liabilities were translated using the 

closing rates ruling at the reporting date. Expenses and income were translated applying average rates of exchange. Exchange 

differences were recognized as a separate component of equity.


Impairment allowance balance 

Account was taken of risks identifiable at the time of the Balance Sheet’s preparation by recognizing item-by-item charges for 

impairment losses and creating provisions. The total impairment allowance balance is disclosed as a deduction on the assets 

side of the Balance Sheet. We recognized charges for individual risk positions on an item-by-item basis applying classificationspecific 

criteria. Provisions for contingent liabilities were recognized on the equity and liabilities side of the Balance Sheet in the 

line item Provisions. A collective assessment of impairment of the portfolio was also carried out in accordance with IAS 39.64. 

Trading assets and liabilities 

Primary financial instruments included in the line item Trading assets were measured at fair value. Derivative financial instruments 

were measured at fair value. Financial instruments with a negative fair value were recognized on the Balance Sheet in the line 

item Trading liabilities. Revaluation gains and losses on this line item were recognized in the Income Statement in the line item 

Net trading income. Interest expenses incurred in the funding of trading assets were recognized in Net interest income. 

Derivatives 

Derivative financial instruments were measured at fair value. Changes in value were generally recognized in the Income 

Statement. 

Receivables 

Receivables were recognized on the Balance Sheet at amortized cost before impairment allowances. 

Property, equipment, intangible assets (non-current) and investment property 

Property, equipment and intangible assets (non-current) and investment property were recognized at cost of acquisition or 

conversion less ordinary depreciation or amortization. Annual depreciation and amortization lay within the following bands: 

– immovable assets: 1.5 to 3.0 per cent; 

– office furniture and equipment: 10 to 25 per cent; 

– software: 25 per cent. 

Impairments were allowed for by recognizing extraordinary depreciation or amortization. If an impairment no longer exists, 

a write-back is made up to the asset’s amortized cost. No extraordinary depreciation or amortization was recognized in the 

year under review. 

Leasing 

The leased assets within the Group required recognition as assets leased under finance leases (risks and rewards incident to 

ownership of an asset remaining with the lessee for the purposes of IAS 17). Leased assets were recognized as receivables in 

the amount of the net present values of the agreed payments taking into account any residual values. 

Financial assets designated as at fair value through profit or loss 

The measurement of certain positions took place under the collective designation at fair value through profit or loss (FV). They 

were thus measured at fair value through profit or loss and the result was recognized in the Income Statement in the line item 

Net income from financial assets designated as at fair value through profit or loss. 

Available-for-sale financial assets 

Available-for-sale (AfS) securities are a separate category of financial instrument. They were generally measured applying 

stock exchange prices. If these were not available, values of interest rate products were estimated using present value techniques. 

Revaluation gains and losses were recognized in the AfS reserve and not through profit or loss. If such securities were 

sold, the corresponding part of the AfS reserve was released through profit or loss. In the event of impairment (e.g. a debtor 

in severe financial difficulties or a measurable diminution of the expected cash flows), a charge for the impairment was recognized 

in the Income Statement. If the reason for the charge no longer exists, a write-back is made. In the case of equity capital 

instruments, it is made to equity through the AfS reserve. In the case of debt instruments, it is made to income. Investments 

in entities that were neither consolidated nor accounted for using the equity method were deemed to be part of the AfS 

portfolio. 

101

102 


Held-to-maturity financial assets 

These encompass financial instruments that are to be held to maturity (HtM). Premiums and discounts are spread over their 

term using the effective interest rate method. Impairment losses were recognized in the Income Statement. 

Investment property 

This line item encompasses property intended for letting to third parties. It was measured at amortized cost (cost method). The 

fair values of investment properties are disclosed in the notes. They were, for the most part, based on estimates (external 

expert opinions). 

Other assets 

The line item Other assets contains receivables not arising directly from banking business. 

Payables 

Payables were recognized at the amounts payable. 

Deferred tax 

The reporting and calculation of income tax expense took place in accordance with IAS 12. The calculation for each taxed entity 

was carried out applying the tax rates that, according to current legislation, were expected to be applied in the tax period in 

which a temporary difference was going to reverse. Deferred taxes were computed on the basis of differences between the 

measured values of assets or liabilities and the relevant tax base. These were expected to cause tax burdens or reduce tax 

burdens in the future. 

Equity 

Equity consists of paid-in and earned capital (retained earnings, gains and losses taken to equity in accordance with IAS 39 and 

profit for the year). Gains and losses taken to equity records gains and losses in the AfS portfolio. 

Provisions 

Provisions were created if there was a reliably determinable legal or actual obligation to a third party arising from an event in 

the past likely to cause a drain of assets. 

“Social capital” provisions (Sozialkapitalrückstellungen) were calculated in accordance with IAS 19. 

An interest rate of 4.75 per cent was applied when calculating provisions for post-employment, termination and jubilee benefits 

(31 December 2007: 4.75 per cent). Other parameters were applied as follows: 

– salary trend: 2.75 per cent (31 December 2007: 2.75 per cent); 

– career trend: 0.25 per cent. 

The “corridor” method was not applied. 

The provision for mortality benefits was also calculated in accordance with IFrSs. 

Net interest income 

Interest income and interest expenses were accounted for on an accrual basis. This line item also includes net income from 

equity investments. Net income from investments in entities accounted for using the equity method was recognized in Net 

interest income net of the associated financing costs. 


This line item captures impairments and reversals of impairments and transfers to and releases from impairment provisions. 

Recoveries of receivables previously written off were also accounted for in this line item. 

Net fee and commission income 

This line item comprises income from services rendered to third parties net of the expenses attributed to those services.


Net trading income 

This line item contains income from items in the trading book and expenses arising from our proprietary trading activities, 

including gains and losses resulting from mark-to-market valuations. 

Other notes 

Forward-looking assumptions and estimates regarding yield curves and foreign exchange rates were made as required. 

The assumptions and estimates used in the preparation of the Consolidated Financial Statements were based on the knowledge 

and information available on the balance sheet date. 

103

104 

(1) nET InTErEST InCOME 


€k 2008 2007 +(-) Change, % 

Interest income from: 

Credit operations 280.246 234.404 19.6 

Fixed-interest securities 29,752 24,142 23.2 

Lease receivables 18,677 13,422 39.2 

Shares 6,086 4,556 33.6 

Investment property 960 981 (2.1) 

Investments in subsidiaries 1,248 246 >100 

Other equity investments 4,700 4,523 3.9 

Total interest income 

Interest expenses on: 

341,669 282,274 21.0 

Deposits from customers and other banks 1 203,738 167,110 21.9 

Liabilities evidenced by paper 21,684 19,703 10.1 

Investment property 348 347 0.3 

Total interest expenses 

Net income from investments in entities accounted for using the 

equity method 

225,770 187,160 20.6 

Income from entities accounted for using the equity method 22,148 20,202 9.6 

Financing costs arising from entities accounted for using the equity method 2 (7,840) (6,708) 16.9 

Net income from investments in entities accounted for using the 

equity method 

14,308 13,494 6.0 

Net interest income 130,207 108,608 19.9 

1 Net of financing costs arising from entities accounted for using the equity method. 2 Based on the average 3-month Euribor. 

(2) CHArGE FOr IMPAIrMEnT LOSSES On LOAnS AnD ADVAnCES 

€k 2008 2007 +(-) Change, % 

Impairment losses 24,031 23,030 4.3 

Reversal of impairment losses (4,864) (4,714) 3.2 

Direct write-offs 1,215 1,635 (25.7) 

Recoveries of receivables previously written off (386) (731) (47.2) 

Charge for impairment losses on loans and advances 19,996 19,220 4.0 

This line item contains charges for impairment losses on lease receivables in the amount of €2.1 million (2007: €1.4 million). 

(3) nET FEE AnD COMMISSIOn InCOME 

€k 2008 2007 +(-) Change, % 

Fee and commission income from: 

Payment services 15,161 15,079 0.5 

Securities operations 13,524 19,961 (32.2) 

Credit operations 9,865 8,396 17.5 

International business 4,765 4,970 (4.1) 

Other services 1,006 1,023 (1.7) 

Total fee and commission income 

Fee and commission expenses arising from: 

44,321 49,429 (10.3) 

Payment services 1,097 1,122 (2.2) 

Securities operations 923 1,140 (19.0) 

Credit operations 1,056 1,153 (8.4) 

International business 97 797 (87.8) 

Other services 341 357 (4.5) 

Total fee and commission expenses 3,514 4,569 (23.1) 

Net fee and commission income 40,807 44,860 (9.0)


(4) nET TrADInG InCOME 

€k 2008 2007 +(-) Change, % 

Price-based contracts 46 150 (69.3) 

Interest rate and currency contracts 1,362 1,633 (16.6) 

Net trading income 1,408 1,783 (21.0) 

(5) GEnErAL ADMInISTrATIVE EXPEnSES 

€k 2008 2007 +(-) Change, % 

Staff costs 59,152 55,971 5.7 

– Wages and salaries 40,223 38,004 5.8 

– Social security costs 10,150 11,042 (8.1) 

– Costs of retirement benefits 1 8,779 6,925 26.8 

Other administrative costs 22,690 21,158 7.2 

Depreciation 6,021 5,677 6.1 

General administrative expenses 87,863 82,806 6.1 

1 The use of new mortality tables (AVÖ 2008) increased these costs by €572 thousand. 

(6) OTHEr OPErATInG InCOME nET OF OTHEr OPErATInG EXPEnSES 

€k 2008 2007 +(-) Change, % 

Other operating income 4,674 4,251 10.0 

Other operating expenses (1,744) (2,159) (19.2) 

Other operating income net of other operating expenses 2,930 2,092 40.1 

(7) nET InCOME FrOM FInAnCIAL ASSETS DESIGnATED AS AT FAIr VALUE THrOUGH PrOFIT Or LOSS 

€k 2008 2007 +(-) Change, % 

Revaluation gains and losses on derivatives (4,771) 2,224 >100 

Gain/(loss) as a result of using the fair value option (292) 560 >100 

Net income from financial assets designated as at fair value through 

profit or loss (5,063) 2,784 >100 

The values of fixed-interest loans to customers in the amount of €45.4 million (31 December 2007: €21.4 million), bonds in the 

asset portfolio in the amount of €82.0 million (31 December 2007: €50.2 million) and BKS Bank’s own issuances in the amount 

of €85.5 million (31 December 2007: €101.6 million) were hedged by appropriate interest rate swaps within the scope of the 

fair value option. The effect of these hedges totalled negative €292.0 thousand (2007: €560.0 thousand). The effect of the fair 

value option is essentially the amount that cannot be attributed to changes in market risk (credit risk). 

(8) nET InCOME FrOM AVAILABLE-FOr-SALE FInAnCIAL ASSETS 

€k 2008 2007 +(-) Change, % 

Unrealized and realized gains and losses (17,989) 1,466 >100 

Net income from available-for-sale financial assets (17,989) 1,466 >100 

Negative €16,822 thousand of unrealized and realized gains and losses was attributable to impairments. Negative €1,167 thousand 

thereof was due to the sale of assets during 2008. 

(9) nET InCOME FrOM HELD-TO-MATUrITY FInAnCIAL ASSETS 

€k 2008 2007 +(-) Change, % 

Unrealized and realized gains and losses 0 (17) (100) 

Net income from held-to-maturity financial assets 0 (17) (100) 

(10) InCOME TAX EXPEnSE 

€k 2008 2007 +(-) Change, % 

Current tax (3,016) (7,590) (60.3) 

Deferred tax 490 (1,194) >100 

Income tax expense (2,526) (8,784) (71.2) 

105

106 

rECOnCILIATIOn FOr 2008 


€k 2008 2007 

Profit for the year before tax 44,441 59,550 

Applicable tax rate 25% 25% 

Computed tax expense 11,110 14,888 

Effect of differing tax rates (28) (59) 

Tax savings 

– arising from tax-exempt net income from equity investments (7,788) (6,461) 

– arising from other tax-exempt income (865) (63) 

– arising from other valuation adjustments (253) (667) 

Additional tax incurred 

– as a result of non-allowable expenses 287 740 

– arising from other tax effects 399 500 

Non-periodic tax expenses (336) (94) 

Income tax expense in period 2,526 8,784 

Effective tax rate 5.7% 14.8% 

(11) CASH AnD BALAnCES WITH THE CEnTrAL BAnK 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Cash in hand 34,136 30,665 11.3 

Credit balances with central banks of issue 35,099 50,157 (30.0) 

Cash and balances with the central bank 69,235 80,822 (14.3) 

(12) rECEIVABLES FrOM OTHEr BAnKS 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Receivables from Austrian banks 94,034 245,792 (61.7) 

Receivables from foreign banks 312,039 634,607 (50.8) 

Receivables from other banks 406,073 880,399 (53.9) 

rECEIVABLES FrOM OTHEr BAnKS, BY TErM TO MATUrITY 

€k 31/12/2008 31/12/2007 

Due on demand 52,273 41,689 

Up to 3 months 125,323 405,237 

From 3 months to 1 year 194,114 426,454 

From 1 year to 5 years 25,550 7,019 

From 5 years and over 8,813 0 

Receivables from other banks 406,073 880,399 

(13) rECEIVABLES FrOM CUSTOMErS 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Corporate and business banking customers 3,417,478 2,853,148 19.8 

Retail banking customers 864,798 804,761 7.5 

Receivables from customers 4,282,276 3,657,909 17.1 

Receivables from customers includes receivables arising from finance leases in the amount of €301.6 million (31 December 

2007: €248.8 million).


rECEIVABLES FrOM CUSTOMErS, BY TErM TO MATUrITY 

€k 31/12/2008 31/12/2007 

Due on demand 173,600 175,332 

Up to 3 months 748,157 516,056 



From 5 years and over 1,834,868 1,592,902 

Receivables from customers 4,282,276 3,657,909 

(14) IMPAIrMEnT ALLOWAnCE BALAnCE 

€k 2008 2007 +(-) Change, % 

At beginning of year under review 96,281 93,666 2.8 

+ First-time consolidation 0 4,241 (100) 

+ Added 19,950 19,410 2.8 

– Released (4,833) (4,595) 5.2 

– Used (15,391) (16,441) (6.4) 

+ Exchange differences 171 — >100 

At end of year under review 96,178 96,281 (0.1) 

The impairment allowance balance includes provisions for the economic risks arising in connection with leasing operations and 

allowances for impairment losses on lease receivables in the amount of €7.0 million (31 December 2007: €4.8 million). 

(15) TrADInG ASSETS 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Bonds and other fixed-interest securities 168 5 >100 

Shares and other variable-yield securities 

Positive fair values of derivative financial instruments 

6 3,749 (99.8) 

– Currency contracts 15 70 (78.6) 

– Interest rate contracts 1,584 1,845 (14.1) 

Other contracts 5,537 5,537 0.0 

Trading assets 7,310 11,206 (34.8) 

(16) FInAnCIAL ASSETS DESIGnATED AS AT FAIr VALUE THrOUGH PrOFIT Or LOSS 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Bonds and other fixed-interest securities 82,044 50,187 63.5 

Loans 45,418 21,447 111.8 

Financial assets designated as at fair value through profit or loss 127,462 71,634 77.9 

FInAnCIAL ASSETS DESIGnATED AS AT FAIr VALUE THrOUGH PrOFIT Or LOSS, BY TErM TO MATUrITY 

€k 31/12/2008 31/12/2007 

Up to 3 months 1,988 2,854 

From 3 months to 1 year 0 985 


From 5 years and over 91,662 45,319 

Financial assets designated as at fair value through profit or loss 127,462 71,634 

107

108 


(17) AVAILABLE-FOr-SALE FInAnCIAL ASSETS 

€k 31/12/2008 31/12/2007 +(-) Change, % 


Shares and other variable-yield securities 77,322 129,378 (40.2) 

Investments in subsidiaries 31,755 36,646 (13.3) 

Other equity investments 14,186 14,732 (3.7) 

Available-for-sale financial assets 344,021 398,116 (13.6) 

AVAILABLE-FOr-SALE FInAnCIAL ASSETS, BY TErM TO MATUrITY 

€k 31/12/2008 31/12/2007 

Bonds and other fixed-interest securities 

Up to 3 months 3,477 49,451 

From 3 months to 1 year 82,677 0 



Available-for-sale financial assets 220,758 217,360 

(18) HELD-TO-MATUrITY FInAnCIAL ASSETS 

€k 31/12/2008 31/12/2007 +(-) Change, % 


Held-to-maturity financial assets 460,115 385,185 19.5 

HELD-TO-MATUrITY FInAnCIAL ASSETS, BY TErM TO MATUrITY 

€k 31/12/2008 31/12/2007 

Up to 3 months 43,786 27,707 




Held-to-maturity financial assets 460,115 385,185 

(19) InVESTMEnTS In EnTITIES ACCOUnTED FOr USInG THE EqUITY METHOD 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Oberbank AG 154,941 150,937 2.7 

Bank für Tirol und Vorarlberg AG 72,640 71,986 0.9 

Alpenländische Garantie-GmbH 643 643 0.0 

Drei-Banken Versicherungs-AG 3,683 3,499 5.3 

Investments in entities accounted for using the equity method 231,907 227,065 2.1 

(20) InTAnGIBLE ASSETS 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Goodwill 12,181 12,169 0.1 

Other intangible assets 2,549 1,718 48.4 

Intangible assets 14,730 13,887 6.1 

The line item Goodwill contains goodwill resultant from the first-time consolidation of BKS Bank d.d. in the amount of €8.9 

million and goodwill resultant from the first-time consolidation of BKS-Leasing a.s. in the amount of €3.3 million. Both 

goodwill items relate exclusively to our market entries in Croatia and Slovakia.


(21) PrOPErTY AnD EqUIPMEnT 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Land 2,364 2,667 (11.4) 

Buildings 48,375 45,093 7.3 

Other 22,404 20,183 11.0 

Property and equipment 73,143 67,943 7.7 

(22) InVESTMEnT PrOPErTY 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Land 8,508 8,164 4.2 

Buildings 9,081 8,779 3.4 

Investment property 17,589 16,943 3.8 

At 31 December 2008, the fair value of our investment property totalled €25,031 thousand (2007: €25,068 thousand). 

PrOPErTY AnD EqUIPMEnT, InTAnGIBLE ASSETS (nOn-CUrrEnT) AnD InVESTMEnT PrOPErTY 

Cost 

1/1/2008 

Added Disposals 

Trans- 

ferred 

Cost 

31/12/2008 

Accum. 

depr./ 

amort. 

Carrying 

amount 

31/12/2008 

Carrying 

amount 

31/12/2007 

Depr./ 

amort. 

2008 

Intangible assets 1 2,875 1,673 3 0 4,545 1,996 2,549 1,718 796 

Equipment 140,211 22,832 12,835 (3,103) 147,105 73,962 73,143 67,943 4,710 

Property 2 27,862 0 1,013 3,103 29,952 12,363 17,589 16,943 515 

170,948 24,505 13,851 0 181,602 88,321 93,281 86,604 6,021 

1 Intangible (non-current) assets. 2 Investment property. 

Transfers consisted essentially of the reclassification of property and equipment used by third parties and owned by consolidated 

Group member Immobilien Errichtungs- u. Vermietungsgesellschaft mbH & Co. KG, Klagenfurt. Additions included 

exchange differences in the amount of €62 thousand. 

(23) DEFErrED TAX ASSETS 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Receivables from customers 479 373 28.4 

Trading assets and liabilities 195 9 >100 

Impairment provisions 759 519 46.2 

Available-for-sale financial assets 1,273 334 >100 

Held-to-maturity financial assets 150 195 (23.1) 

Property and equipment 286 301 (5.0) 

Other assets and liabilities 5,470 2,328 >100 

Provisions (for post-employment and termination benefits, other provisions) 5,671 5,490 3.3 

Other balance sheet items 28 0 >100 

Recognized benefits in respect of unused tax loss carryforwards 0 35 (100) 

Deferred tax assets 14,311 9,584 49.3 

(24) OTHEr ASSETS 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Positive fair values of derivative financial instruments 5,570 21,088 (73.6) 

Other items 15,984 5,403 >100 

Deferred items 2,147 1,786 20.2 

Other assets 23,701 28,277 (16.2) 

109

110 


(25) PAYABLES TO OTHEr BAnKS 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Payables to Austrian banks 1,010,716 696,139 45.2 

Payables to foreign banks 405,259 700,594 (42.2) 

Payables to other banks 1,415,975 1,396,733 1.4 

PAYABLES TO OTHEr BAnKS, BY TErM TO MATUrITY 

€k 31/12/2008 31/12/2007 

Due on demand 136,879 77,752 

Up to 3 months 1,064,834 1,218,930 



From 5 years and over 888 12,600 

Payables to other banks 1,415,975 1,396,733 

(26) PAYABLES TO CUSTOMErS 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Savings deposit balances 1,677,549 1,443,697 16.2 

Corporate and business banking customers 270,876 195,206 38.8 

Retail banking customers 1,406,673 1,248,491 12.7 

Other payables 1,815,572 1,886,323 (3.8) 

Corporate and business banking customers 1,336,443 1,442,315 (7.3) 

Retail banking customers 479,129 444,008 7.9 

Payables to customers 3,493,121 3,330,020 4.9 

PAYABLES TO CUSTOMErS, BY TErM TO MATUrITY 

€k 31/12/2008 31/12/2007 

Due on demand 918,445 1,009,474 

Up to 3 months 1,231,160 1,318,318 

From 3 months to 1 year 1,333,570 944,870 



Payables to customers 3,493,121 3,330,020 

(27) LIABILITIES EVIDEnCED BY PAPEr 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Issued bonds 125,929 166,316 (24.3) 

Other liabilities evidenced by paper 85,754 85,227 0.6 

Liabilities evidenced by paper 211,683 251,543 (15.8) 

Issued bonds includes €0 million of bonds measured at fair value (2007: €20.3 million). Other liabilities evidenced by paper 

includes €85.5 million of liabilities measured at fair value (2007: €81.3 million) (fair value option). 

LIABILITIES EVIDEnCED BY PAPEr, BY TErM TO MATUrITY 

€k 31/12/2008 31/12/2007 

Up to 3 months 15,641 17,632 




Liabilities evidenced by paper 211,683 251,543


(28) TrADInG LIABILITIES 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Interest rate contracts 1,658 1,879 (11.8) 

Currency contracts 0 69 (100.0) 

Trading liabilities 1,658 1,948 (14.9) 

(29) PROVISIONS 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Provisions for post-employment benefits and similar obligations 71,093 68,356 4.0 

Provisions for taxes (current tax) 196 1,565 (87.5) 

Other provisions 11,449 10,591 8.1 

Provisions 82,738 80,512 2.8 

During the year under review, the calculation of so-called “social” capital was based on an interest rate of 4.75 per cent 

(2007: 4.75 per cent). 

PrOVISIOnS FOr POST-EMPLOYMEnT BEnEFITS AnD SIMILAr OBLIGATIOnS 

€k 2008 2007 

Provision balance at 1 January 68,356 65,967 

+ Interest cost 2,860 2,631 

+ Service cost 516 1,450 

– Payments during the year under review (4,535) (4,649) 

+ Actuarial gain 3,324 2,957 

+ Mortality table adjustment 572 0 

Provision balance at 31 December 71,093 68,356 

OTHEr PrOVISIOnS 

€k 2008 2007 

Provision balance at 1 January 80,512 76,101 

+ Changes in the scope of consolidation 3 393 

+ Added 7,852 8,930 

– Used (4,608) (4,706) 

– Released (1,021) (206) 

Provision balance at 31 December 82,738 80,512 

(30) DEFErrED TAX LIABILITIES 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Trading assets and liabilities 

Financial assets and liabilities designated as at fair value through profit or 

103 75 37.3 

loss 1,597 54 >100 

Available-for-sale financial assets and liabilities 1,563 3,486 (55.2) 

Held-to-maturity financial assets and liabilities 685 635 7.9 

Property and equipment 58 6 >100 

Other assets and liabilities 786 1,320 (40.5) 

Liabilities evidenced by paper 2,353 1,199 96.2 

Provisions (for post-employment and termination benefits, other provisions) 262 0 >100 

Other balance sheet items 0 4 (100) 

Deferred tax liabilities 7,407 6,779 9.3 

111

112 

Deferred taxes in the amount of €2,546 thousand were taken to equity (31 December 2007: negative €922 thousand). The 

available-for-sale reserve accounted for €2,546 thousand thereof (31 December 2007: negative €922 thousand). 

(31) OTHEr LIABILITIES 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Negative fair values of derivative financial instruments 37,922 18,817 >100 

Other items 18,962 14,275 32.8 

Deferred items 1,257 1,307 (3.8) 

Other liabilities 58,141 34,399 69.0 

(32) SUBOrDInATED DEBT CAPITAL 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Supplementary capital 220,301 200,219 10.0 

Hybrid capital 20,000 0 100 

Subordinated debt capital 240,301 200,219 20.0 

SUBOrDInATED DEBT CAPITAL, BY TErM TO MATUrITY 

€k 31/12/2008 31/12/2007 

From 3 months to 1 year 18,376 0 



Subordinated debt capital 240,301 200,219 

(33) FAIR VALUES 


31/12/2008 31/12/2007 

Carrying 

Carrying 

€k Fair Values Amounts Fair Values Amounts 

Assets 

Receivables from other banks 408,880 406,073 880,718 880,399 

Receivables from customers 4,381,241 4,282,276 3,676,298 3,657,909 

Financial assets designated as at fair value through 

profit or loss 

127,462 127,462 71,634 71,634 

Available-for-sale financial assets 344,021 344,021 398,116 398,116 

Held-to-maturity financial assets 

Investments in entities accounted for using the 

473,205 460,115 382,292 385,185 

equity method 

Equity and liabilities 

278,065 231,907 310,225 227,065 

Payables to other banks 1,418,173 1,415,975 1,395,592 1,396,733 

Payables to customers 3,507,665 3,493,121 3,316,356 3,330,020 

Liabilities evidenced by paper 210,665 211,683 251,900 251,543 

Subordinated debt capital 242,193 240,301 198,504 200,219 

The table above presents the fair values of the respective balance sheet items. Fair values are the amounts for which financial 

instruments could be exchanged between knowledgeable, willing parties in an arm’s length transaction on the balance sheet 

date. If market prices on a stock exchange were available, they were used. In general, other items were measured using present 

value techniques.


DIFFErEnCES BETWEEn FAIr VALUES AnD CArrYInG AMOUnTS 

€k 

31/12/2008 

Difference 

31/12/2007 

Difference 

Assets 

Receivables from other banks 2,807 319 

Receivables from customers 98,965 18,389 

Financial assets designated as at fair value through profit or loss — — 

Available-for-sale financial assets — — 

Held-to-maturity financial assets 13,090 (2,893) 

Investments in entities accounted for using the equity method 

Equity and liabilities 

46,158 83,160 

Payables to other banks (2,198) 1,141 

Payables to customers (14,544) 13,664 

Liabilities evidenced by paper 1,018 (357) 

Subordinated debt capital (1,892) 1,715 

(34) InVESTMEnTS In ASSOCIATES AT 31 DECEMBEr 2008 

Percentage 

Profit/(loss) 

Method * 

held Assets for the year 

Alpenländische Garantie-GmbH E 25 165,468 0 

Oberbank AG E 16.95 14,877,569 49,963 

Bank für Tirol und Vorarlberg AG E 13.59 8,371,113 42,018 

Drei-Banken Versicherungs-AG E 20 201,420 1,367 

M 2000 Liegenschaftsverwertungs GmbH N 50 175 (20) 

DREI-BANKEN-EDV Gesellschaft mbH N 30 18,752 128 

InVESTMEnTS In ASSOCIATES AT 31 DECEMBEr 2007 

Percentage 

Profit/(loss) 

Method * 

held Assets for the year 

Alpenländische Garantie-GmbH E 25 139,977 0 

Oberbank AG E 17.00 13,911,828 56,364 

Bank für Tirol und Vorarlberg AG E 13.59 7,800,300 38,299 

Drei-Banken Versicherungs-AG E 20 211,901 1,291 

M 2000 Liegenschaftsverwertungs GmbH N 50 175 (2) 

DREI-BANKEN-EDV Gesellschaft mbH 

*E = Accounted for using the equity method. 

*N = Not included. 

N 30 16,125 259 

Of the entities accounted for using the equity method, Oberbank AG and BTV AG were, for the following reasons, thus 

accounted for in the Consolidated Financial Statements even though a stake of at least 20 per cent was not held: A syndicate 

agreement is in place between BKS Bank, BTV AG and Wüstenrot Wohnungswirtschaft reg. Genossenschaft mbH in connection 

with our equity investment in Oberbank AG, and a syndicate agreement is in place between BKS Bank AG, Oberbank AG, 

Generali 3 Banken Holding AG and Wüstenrot Wohnungswirtschaft reg. Genossenschaft mbH in connection with our equity 

investment in BTV AG. 

At year-end, the market value of BKS Bank AG’s listed equity investment in Oberbank AG was €202.4 million (31 December 

2007: €227.3 million), and the market value of its listed equity investment in BTV AG was €71.3 million (31 December 2007: 

€78.8 million). In turn, Oberbank AG and BTV AG held a total of 1,733,506 shares of BKS Bank AG (31 December 2007: 

1,733,506). 

113

114 

(35) TrAnSACTIOnS WITH ASSOCIATES 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Assets 

Receivables from other banks 823 46,402 (98.2) 

Receivables from customers 

Liabilities 

954 1,239 (23.0) 

Payables to other banks 248,005 210,212 18.0 

Payables to customers 74,678 42,307 76.5 

(36) TrAnSACTIOnS WITH SUBSIDIArIES 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Assets 

Receivables from customers 14,922 15,041 (0.8) 

Other assets 

Liabilities 

1,049 47 >100 

Payables to customers 852 498 71.1 

(37) SEGMEnT rEPOrTInG 

On the grounds of immateriality, secondary segment reporting (by country) was dispensed with. 

Method: net interest income was allocated using the market interest rate method. Incurred costs were allocated to individual 

business segments on a cost-by-cause basis. Structural income was allocated to the Financial Markets segment. Capital was 

allocated according to regulatory criteria. Average allocated equity was measured applying an interest rate of 5 per cent and 

the result was recognized as income from investing equity in the line item Net interest income. The performance of each business 

segment was gauged in terms of the profit before tax recorded by that segment. Alongside the cost:income ratio, return 

on equity was also one of the principal benchmarks for managing business segments. 

SEGMEnT BrEAKDOWn 



€k 2008 2007 

Net interest income 32,273 31,349 

Charge for impairment losses on loans and advances (1,570) (2,080) 

Net fee and commission income 16,955 20,922 

Net trading income 0 0 

General administrative expenses (47,574) (44,170) 

Other operating income net of other operating expenses 1,204 1,003 

Net income from financial assets 0 0 

Profit for the year before tax 1,288 7,024 

Average risk-weighted assets 572,350 674,513 

Average allocated equity 45,788 53,961 

Segment liabilities 2,475,808 2,391,325 

ROE based on profit for the year 2.8% 13.0% 

Cost:income ratio 94.3% 82.9%


(38) nOn-InTErEST ASSETS 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Non-interest assets 124,037 134,402 (7.7) 

Non-interest receivables from customers less impairment came to €44.3 million (31 December 2007: €41.8 million). 

(39) SUBOrDInATED ASSETS 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Receivables from customers 1,809 1,563 15.7 

Bonds and other fixed-interest securities 9,795 10,905 (10.2) 

Shares and other variable-yield securities 9,302 9,360 (0.6) 

(40) BALANCES IN FOREIGN CURRENCIES 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Assets 1,151,316 1,302,051 (11.6) 

Liabilities 268,604 549,373 (51.1) 

(41) COnTInGEnT LIABILITIES AnD COMMITMEnTS 

€k 31/12/2008 31/12/2007 +(-) Change, % 

Guarantees 371,404 329,488 12.7 

Letters of credit 2,211 1,202 83.9 

Contingent liabilities 373,615 330,690 13.0 

“Non-genuine” or “pseudo” repos (unechte Pensionsgeschäfte) 5,537 5,537 0.0 

Other commitments 767,480 800,058 (4.1) 

Commitments 773,017 805,595 (4.0) 

Corporate and Business 

Banking 

Financial Markets Other Total 

2008 2007 2008 2007 2008 2007 2008 2007 

55,254 47,111 43,167 27,652 (487) 2,496 130,207 108,608 

(18,426) (17,140) 0 0 0 0 (19,996) (19,220) 

23,066 22,378 1,446 1,439 (660) 121 40,807 44,860 

0 0 1,408 1,783 0 0 1,408 1,783 

(32,263) (29,324) (6,990) (7,453) (1,036) (1,859) (87,863) (82,806) 

1,551 876 (31) (68) 206 281 2,930 2,092 

0 0 (23,052) 4,233 0 0 (23,052) 4,233 

29,182 23,901 15,948 27,586 (1,977) 1,039 44,441 59,550 

2,752,979 2,488,804 593,820 461,895 144,298 193,754 4,063,447 3,818,966 

220,238 199,104 175,294 157,672 16,264 22,700 457,584 433,437 

1,724,589 1,641,647 1,621,546 1,570,926 153,752 148,791 5,975,695 5,752,689 

13.3% 12.0% 9.1% 17.5% — — 9.7% 13.7% 

40.4% 41.7% 15.2% 24.2% — — 50.1% 52.6% 

115

116 


(42) InVESTMEnTS In SUBSIDIArIES AnD SELECTED OTHEr EqUITY InVESTMEnTS 

BKS-Leasing Gesellschaft mbH, 

Klagenfurt 

BKS-Immobilienleasing Gesellschaft mbH, 

Klagenfurt 

Immobilien Errichtungs- u. Vermietungsgesellschaft 

mbH & Co. KG, Klagenfurt 

BKS Zentrale-Errichtungs- u. 

Vermietungsgesellschaft mbH, Klagenfurt 2 

BKS Immobilien-Service Gesellschaft mbH, 

Klagenfurt 

BKS 2000-Beteiligungsverwaltungsgesellschaft 

mbH, Klagenfurt 

Oberbank AG, 

Linz 

Bank für Tirol und Vorarlberg AG, 

Innsbruck 

Alpenländische Garantie-Gesellschaft mbH, 

Linz 

DREI-BANKEN-EDV Gesellschaft mbH, 

Linz 

3-Banken Beteiligung Gesellschaft mbH, 

Linz 

Drei-Banken Versicherungs Aktiengesellschaft, 

Linz 

BKS-leasing d.o.o., 

Ljubljana 

BKS-leasing Croatia d.o.o., 

Zagreb 

E 2000 Liegenschaftsverwertungs-GmbH, 

Klagenfurt 

M 2000 Liegenschaftsverwertungsgesellschaft 

mbH, Mattersburg 3 

VBG Verwaltungs- und Beteiligungsgesellschaft 

mbH, Klagenfurt 

BKS Bank d.d., 

Rijeka 

BKS-Leasing a.s., 

Bratislava 

IEV Immobilien GmbH, 

Klagenfurt 

BKS Hybrid alpha GmbH, 

Klagenfurt 

VBG-CH Verwaltungs- und Beteiligungs 

GmbH, Klagenfurt 

LVM Beteiligungs Gesellschaft m.b.H., 

Vienna 

M 1 Percentage held by Profit/(loss) 

Equity, €m 

BKS 

for the year, €m 

31/12/2008 31/12/2007 Direct Indirect 2008 2007 

C 

C 

C 

C 

N 

N 

E 

E 

E 

N 

N 

E 

C 

C 

N 

N 

N 

C 

C 

C 

C 

N 

N 

0.49 0.49 100% 0.23 0.72 

3.41 3.03 100% 0.37 0.44 

1.26 1.11 100% (0.07) (0.05) 

1.09 0.83 100% 0.26 0.05 

0.22 0.22 100% 0.05 0.05 

19.16 17.92 100% 1.44 0.42 

744.4 704.25 16.95% 49.96 56.36 

430.8 396.09 13.59% 42.02 38.30 

2.57 2.57 25% 0.00 0.00 

3.49 3.36 30% 0.13 0.26 

27.58 25.20 30% 2.38 3.26 

18.41 17.50 20% 1.37 1.29 

2.51 2.57 100% (0.07) 0.06 

0.54 0.91 100% (0.25) (0.65) 

0.01 0.01 99% 1% 0.01 (0.01) 

0.17 0.17 50% (0.02) 0.00 

0.29 0.22 100% 0.01 (0.01) 

9.99 10.20 99.79% (0.17) 0.47 

17.44 4.74 100% 0.58 0.13 

0.04 0.04 100% 0.00 0.00 

0.03 — 100% 0.00 — 

0.03 0.03 100% 0.00 0.00 

0.02 0.03 100% (0.01) 0.00 

1 Method: C = consolidated; E = accounted for using the equity method; n = not included on the grounds of immateriality in accordance with 

§ 59 Abs. 3 BWG (these companies being immaterial given the nature of the BKS Bank Group’s banking operations). 

2 Equity includes a subordinated Genussrecht (profit participation note) in the amount of €3.63 million. 

3 Equity includes subordinated receivables in the amount of €0.28 million.


BKS Bank’s portfolio of equity investments consisted largely of strategic equity investments in banks (syndicate partners). Its 

investments in subsidiaries consisted primarily of investments in its strategic partners in the banking and other financial 

service sectors and banking-related ancillary service industries. Equity investment items comprised equity investments and 

investments in subsidiaries intended to give lasting support to BKS Bank’s business operations. Those equity investments 

were recognized at cost net of any impairments. We did not record any material gains or losses on the disposal of equity 

investments during the 2008 financial year. 

43) EVEnTS AFTEr THE BALAnCE SHEET DATE 

No material, reportable events took place between the end of the financial year and the preparation of the Annual Financial 

Statements and/or their certification by the Auditors. 

(44) ASSETS PLEDGED AS COLLATErAL FOr LIABILITIES 

Liabilities Assets 31/12/2008 31/12/2007 

Money held in trust pursuant to § 230 a ABGB Securities 10,000 10,000 

Arrangement deposit for stock exchange trading Securities 1,588 1,588 

Collateral deposit for ÖTOB trading Securities 0 700 

Collateral deposit for EUREX trading Securities 287 287 

Xetra collateral Securities 956 956 

Euro-Clear pledge Securities 4,824 9,862 

SEPA collateral for the Slovenia branch Securities 60 0 

Collateral for OeNB loans Securities 191,514 0 

Collateral for OeNB loans Loans 179,121 0 

Collateral for loans to Banka Slovenije Loans 10,600 0 

(45) EMPLOYEES, BOARDS AND OFFICERS 

BKS Bank 

2008 2007 

Average number of salaried (white-collar) staff: 

Salaried staff working for BKS Bank 758 728 

Salaried staff working at BKS Bank for entities considered to be related parties 39 40 

Salaried staff working at entities considered to be related parties 93 66 

Salaried staff in the BKS Bank Group 890 834 

– Salaried staff working for entities considered to be related parties from the 

Group’s standpoint 

30 31 

Average number of non-salaried (blue-collar) staff 

Emoluments of the Management Board including retirement pensions paid to former 

32 31 

members of the Management Board and their surviving dependents, €k 

Expenditure on termination and post-employment benefits for members of the 

1,685 1,542 

Management Board (including former members and their surviving dependents), €k 

Expenditure on termination and post-employment benefits for employees (including 

1,201 1,324 

former employees and their surviving dependents), €k 6,627 

5,904 

Remuneration paid to members of the Supervisory Board, €k 

Advances and loans granted to members of the Management Board and Supervisory 

Board (insofar as such were granted, repayments were taking place and they were 

112 92 

granted on normal commercial terms and conditions), €k 0 

12 

117

118 

OrGAnIZATIOnAL FOUnDATIOnS OF rISK MAnAGEMEnT 



(46) MAnAGEMEnT OF OVErALL BAnK rISK 

The goal of BKS Bank’s risk policy is to detect banking risks early and to actively manage and limit them using effective risk 

management procedures. Making as efficient as possible use of available capital in the light of medium-term and long-term 

strategic goals is at the centre of these risk management activities. The root idea is to consciously define, measure and actively 

maintain an ideal equilibrium between individual risk propensities and expected returns. 

BKS Bank’s risk management strategy stresses the conservative handling of banking risks. risks at BKS Bank are controlled 

and managed by means of a comprehensive system of risk principles and risk measurement and monitoring procedures and 

appropriate organizational structures. Based on official regulatory recommendations, a Management Board member who 

is not involved in front-office operations has central responsibility for risk management. The Management Board decides 

risk strategy, approves risk management principles and specifies limits for all the relevant risks as well as risk monitoring 

procedures. 

risk Controlling — a central, autonomous controlling group — supports the Management Board in the performance of these 

tasks. This unit reports regularly to the Management Board, assessing the Bank’s current risk position in the light of its riskbearing 

capacity and the relevant risk limits. As an independent watchdog, Risk Controlling ensures that the measured risks all 

lie within the limits set by the Management Board. It is responsible for the development and implementation of risk measurement 

methods, the ongoing development and refinement of management instruments, independent and neutral risk profile 

reporting and the development and maintenance of the Bank’s basic regulatory framework. 

Credit Risk Management is responsible for defining risk-based credit decision-making processes and for making actual credit 

decisions itself from and up to a certain loan size as well as for the comprehensive management and processing of troubled 

loans. This department has the requisite rehabilitation and workout skills. Liquidity management and the management of the 

market risks in the banking book are carried out during the monthly ALM meetings. 

As a further independent internal watchdog, BKS Bank’s Internal Audit Division monitors all operational and business processes, 

the adequacy and effectiveness of measures taken by Credit Risk Management and Risk Controlling and the Bank’s 

internal control systems. Internal risk management activities are based on established techniques and procedures employed 

in the financial sector. We use a risk control system that is well established in the market to calculate market risks and now, 

likewise, credit risks. 

The risk-bearing capacity measurement mechanism in place at BKS Bank allows us to meet the regulatory qualitative risk 

management requirements created by the second pillar (supervisory review) under Basel II and ICAAP (the Internal Capital 

Adequacy Assessment Process). Based on the concept of risk-bearing capacity, the goal of the overall bank risk management 

process must be to ensure the Bank’s survival as a going concern. 

Corporate 

and Business 


Risk Controlling 

(Group within BKS Bank Controlling) 

Management of Overall Bank Risk 

Credit Risk Market Risk Operational Risk 

Liquidity Risk 

Retail 


Credit Risk Management 

Credit Risk 

Treasury and 

International 

Business 

Asset Liability Management 

Market Risk 

Back 

Office 

IT 

Central 

Operations 

3BEG


In the course of risk-bearing capacity analysis, all risks are aggregated at an overall bank level. Risk aggregation means aggregating 

the results of risk measurements in the various risk categories to ascertain the total potential loss that could be caused by 

the Bank’s risk exposures. During the calculation of the Bank’s risk-bearing capacity, the aggregated total potential loss that 

could be caused by the Bank’s risk exposures is compared with the assets available to cover such a potential loss. The purpose 

of this comparison is to ascertain whether the Bank is in a position to detect and cover any unexpected losses without suffering 

serious detriment to its business operations and without outside help. The Bank’s overall risk limit is set on the basis of this 

periodical risk-bearing capacity analysis. The economic capital needed to cover risks is the risk yardstick used to compute the 

Bank’s overall risk limit. It is defined as the smallest amount of capital needed to cover unexpected losses. 

In contrast, expected loss is calculated on the basis of average losses experienced in the past. These “foreseeable costs” are 

factored into prices as a risk premium (standard risk costs) and must be recouped through the terms and conditions imposed 

on customers. The unexpected loss is the maximum actual loss that could exceed this expected loss in a given period and with 

a previously defined probability (confidence interval). Sufficient capital must be available to cover unexpected losses. At BKS 

Bank, unexpected losses within a period of one year are predicted on a going-concern basis with a confidence interval of 95 per 

cent and on a liquidation basis with a confidence interval of 99.9 per cent. 

BKS Bank has adopted the going-concern approach to capital adequacy. This means matching potential losses and risk-bearing 

capacity to one another in such a way that the Bank is in a position to absorb an adverse burden while continuing to conduct 

business in an orderly manner. In addition, capital adequacy is calculated for the event of liquidation. This is done to safeguard 

creditors. Furthermore, stress scenarios are defined to quantify the losses that could result from extreme events. During the 

credit risk management process, we carry out stress tests to assess the effects that changes in economic conditions could have 

on credit exposures taking into account changes in borrower quality in our portfolio. Market risk is captured by simulating 

adverse movements in market prices. Based on the results of the Bank’s risk-bearing capacity analysis procedures and its business 

strategy, guidelines for and limits on entering into risk positions are defined within the scope of its risk strategy. 

Credit risk 

Credit risk is the risk of a partial or complete loss of contractually agreed loan payments. This risk can be caused by deterioration 

in a business counterparty’s credit standing or, indirectly, by country risk as the result of a counterparty’s domicile or place 

of residence. 

BKS Bank’s risk-bearing capacity analysis in this area looks at credit value at risk within a risk horizon of one year and applying a 

confidence interval of 95 per cent or 99.9 per cent. The model’s core risk parameter — the probability of default in each rating 

class — is computed on the basis of the Bank’s own rating records and then used to calculate credit value at risk. 

Counterparty and Default Risk, 

Credit Risk Concentration 

Risk 

Management 

ZKM 1 

Risk 

Controlling 

ZCR/RC 2 

Credit Risk 

Equity Investment Risk 

Risk 

Management 

ZVB 3 

Risk 

Controlling 

ZCR/BILA 4 

1 Central Credit Risk Management Department. 2 Central Controlling Department (Risk Controlling). 

3 Central Office of the Management Board. 4 Central Controlling Department (Accounts). 

119

120 


Every credit decision is based on in-depth analysis of the credit exposure, which includes assessing all the relevant influencing 

factors. Credit exposures must be approved and managed in line with BKS Bank’s lending guidelines. Before being granted, 

every loan must receive approval at an appropriate level of authority. Authority to grant loans is only given to employees who 

have the requisite qualifications, experience and training. The credit approval chain is clearly defined. The size of the loan, 

permissible collateral shortfall and terms and conditions will be based on the particular customer’s credit rating. 

Rating is generally carried out on a dual-control or “four-eyes” basis. As a rule, after the first loan application, a credit exposure 

will be reviewed in detail once a year. This will include a review of the borrower’s creditworthiness and a collateral impairment 

review. Shorter review periods are mandatory if there is a material deterioration in the borrower’s credit standing. 

Our rating model is an important foundation for efficient risk management at BKS Bank and is embedded into every decisionmaking 

process carried out by risk Management. The Bank’s internal rating model is subject to regular, annual review to check 

whether it accurately captures the risks being measured. One specific goal of the rating validation process is to monitor the 

internal rating system’s “selectivity”. 

A rating system’s selectivity describes its ability to distinguish between defaulted borrowers and non-defaulted borrowers on 

an ex ante basis. BKS Bank AG uses two instruments to analyze selectivity, namely the cumulative accuracy profile (CAP) curve 

and the receiver operating characteristic (rOC) curve. This analysis is rounded off by calculating “Gini” coefficients. 

We view the early detection and systematic processing of risk events as particularly important components of the risk management 

process. A risk exists if a customer’s credit standing is such that one can no longer rule out a loan loss in the near 

future. The goal is to rapidly identify any need for rehabilitation and take action to rehabilitate the loan efficiently, promptly 

and in a structured manner. A customer advisor’s personal responsibility ends totally as soon as an exposure is found to be at 

risk. Thereafter, the customer is serviced by Central Credit risk Management, and the Management Board is given a full report 

on the current status of the particular exposure once a quarter. 

Impairment losses are recognized in the loan portfolio in accordance with our expectations regarding probable loan losses. Credit 

Risk Management is responsible for setting item-by-item charges for impairment losses, which are always calculated on the 

basis of collateral shortfalls. Item-by-item charges are recognized for loans to corporate and business banking customers and 

to other banks if the customer in question has a collateral shortfall of €70,000 or more. In the retail banking segment, item-byitem 

charges are recognized if the customer in question has a collateral shortfall of €35,000 or more. Impairments are assessed 

collectively for loans to customers who are believed to be at risk of default but whose collateral shortfalls are smaller. In addition, 

BKS Bank recognizes an allowance for incurred but not yet reported losses on a portfolio analysis basis in accordance with the 

International Financial Reporting Standards. 

Large loan risks are secured by a cover pool at Alpenländische Garantie-Gesellschaft m.b.H. (ALGAR). 

Concentrations of credit risks are managed at a portfolio level. We aim for a balanced distribution of credit exposure sizes, and 

we set targets to this end. At least 30 per cent of our total exposure must be accounted for by loans of less than €400 thousand, 

and no more than 30 per cent may comprise loans exceeding €10 million. Limits have also been set for regional distributions, 

these being expressed in percentages of BKS Bank’s balance sheet total. Our lending to individual sectors and industries is 

closely monitored on the basis of regular evaluations and a clear strategic focus. We also differentiate between exposures 

according to loan duration. Longer durations are deemed to create additional risk. Special lending conditions apply in the case 

of loan durations of more than 15 years. 

The risks associated with foreign currency loans are managed at both the single customer level and the portfolio level. At the single 

customer level, risks are effectively limited by applying comparatively strict credit approval guidelines. At the portfolio level, a 

limit has been set on foreign currency lending. Adherence to this limit is monitored within the scope of quarterly FX reports to 

the Management Board, and a regular repayment vehicle review also takes place within the scope of these FX reports. 

Credit Risk Management, a central department, is responsible for managing, analyzing and controlling credit operations and 

collateral. An organizational firewall is in place between Sales and Credit Risk Management. Consequently, the primary responsibility 

for risk lies with the unit servicing the customer, whereas the secondary responsibility for risk from a certain loan


amount — including, above all, responsibility for the second-line assessment of credit risk, the approval of loan applications and 

reporting at the single customer level —lies with Credit risk Management. Monitoring and reporting at the portfolio level is 

carried out separately by Risk Controlling, which, among other things, prepares a quarterly credit risk report for the Management 

Board. This report is a central management and monitoring instrument. 

Collateral management is another central pillar of risk management. It is the responsibility of the central Credit Risk Management 

Department, which continuously monitors the stability of collateral and its freedom from impairments. Moreover, 

extensive written valuation guidelines are in place. Standardized collateral valuation policies have been defined. In principle, 

they are based on average proceeds from liquidation recorded in the past. BKS Bank’s principal collateral policies are tested 

using a default database. 

Generally, we pursue one of two liquidation strategies when selling collateral. First and foremost, we strive for voluntary, outof-court 

liquidation. We only strive for court liquidation if we cannot come to an agreement with the customer. The most 

important classes of collateral accepted by BKS Bank are real estate, securities, cash deposits, pledged or assigned life insurance 

policies and personal guarantees. The amount of collateral required at the single customer level will depend on the customer’s 

rating and the products in question. 

Equity investment risk 

Equity investment risk encompasses the risk of lost dividends, impairments and realized losses and the risk of a decline in the 

value of hidden reserves caused by the possibility of poor financial performance on the part of entities in which equity investments 

are held. 

BKS Bank performs both strategic and operational equity investment management. Strategic equity investment management 

is handled by the Management Board, ensuring that, if necessary, suitable steps will be taken to minimize risks and enhance 

opportunities. 

The operational management of equity investments is the responsibility of the Office of the Management Board. The Controlling 

Department is responsible for risk control. To facilitate the management and control of individual financial risks, we prepare 

overall annual budgets for Group subsidiaries as well as budgeting for and preparing adapted projections of the profits that 

are to be expected from equity investments. Monthly reports on operational subsidiaries are an integral part of our reporting 

system. 

Market risk 

BKS Bank defines market risk as the risk of losses caused by fluctuations in market prices (e.g. equity and bond prices, foreign 

exchange rates, interest rates) and parameters that influence prices (e.g. volatilities and credit spreads). This risk category 

includes both trading book and banking book positions. 

Our management activities differentiate between three kinds of market risk: 

– interest rate risk; 

– equity price risk; 

– currency risk. 

Our total market risk limit is derived from the risk-bearing capacity analysis process. It is set on the basis of a fixed distribution 

of covering funds between the different risk categories. There are risk limits for every activity that involves market 

risks. Overall, these limits are statistically consistent with the overall value-at-risk limit. Adherence to limits is monitored by 

Risk Controlling. 

The operational management of market risk is based on a value-at-risk model so as to derive a quantitative measure of market 

risk in the trading and banking books under normal market conditions. Value-at-risk, or VaR, is calculated using a variancecovariance 

model. It expresses the maximum loss that will not be exceeded within a given holding period and applying a given 

confidence interval. Value at risk in BKS Bank’s trading book is measured applying a holding period of one day and a confidence 

interval of 99 per cent. 

121

122 

Value at risk in the banking book is measured applying a holding period of 30 days and a confidence interval of 95 per cent. For 

the purposes of risk aggregation within the scope of the risk-bearing capacity analysis process, value at risk is measured applying 

confidence intervals of 95 and 99.9 per cent. 

The Treasury Division incurs market price risks in the trading book within the limits that have been set. Overnight market price 

risks are monitored by risk Controlling. The Management Board is given a daily report on the utilization of limits in the trading 

book. 

Managing interest rate risk in the banking book is the responsibility of the Asset Liability Management (ALM) Committee. This 

committee is made up of the Management Board and the heads of the relevant banking departments. The ALM Committee 

meets once a month to discuss the results of present value and duration analyses and simulations of changes in interest rates. 

In addition to interest rate risk, we are also subject to currency risks arising from open currency positions. Generally, all loans 

and deposit balances denominated in a foreign currency are funded or invested in the same currency. Currency risk results 

from the possibility of changes in the foreign exchange rates applicable to open currency positions. At BKS Bank, these positions 

have always been very small. 

Currency positions and the associated own funds requirement are monitored by Risk Controlling in accordance with § 223 

SolvaVO (Austrian solvency directive). Equity price risk in the banking book is managed by the ALM Committee. 

Banking Book 

APM 

Risk Management 


Trading Book 

ZEA 1 

Market Risk 

1 Central Treasury and International Business Department. 


Banking Book Trading Book 

ZCR/RC 

Liquidity risk 

Liquidity risk is the risk that it may not be possible to meet current or future financial obligations in full or in time. It also includes 

the risk that, in the event of a liquidity crisis, it may only be possible to raise funds at higher than usual market rates (funding risk) 

or liquidate assets at lower than usual market rates or prices (market liquidity risk). The management of medium and longer 

term liquidity is carried out by the Asset Liability Management Committee. The Treasury Division is responsible for short-term 

liquidity management. Liquidity risk management activities are reported in a quarterly Liquidity Report detailing our liquidity 

requirement pursuant to § 25 BWG, the concentration of deposits, loan call-in risks and capital tie-ups on the assets and equity 

and liabilities sides of the Balance Sheet in various maturity bands. 

Risk Management 

Short-term Long-term 

Trading 

ALM 

Liquidity Risk 


ZCR/RC


Operational risk 

Like Basel II, BKS Bank defines operational risk as “the risk of loss resulting from inadequate or failed internal processes, people 

and systems or from external events.” Consequently, failures of IT systems, material damages, processing errors and fraud are 

among the sources of risk that we subject to a precise and, above all, consolidated risk measurement and management process 

that, among other things, provides the basis for calculating risk capital. 

The Or Committee is responsible for defining our operational risk management framework. The implementation of the framework 

and the daily management of operational risks are the responsibility of the relevant operational units (so-called risk-taking 

units). 

We use a variety of techniques to ensure the efficient management of operational risk. 

Here are a few examples: 

– We carry out self-assessments on a bottom-up basis. The result is a specific risk profile for each area of our activities with a 

clear emphasis on areas where the potential risks are high. 

– We record operational risk losses in a loss database. 

– All measures decided upon as a result of such self-assessments and the monitoring of actual losses are recorded and their 

implementation is monitored. 

– A quarterly operational risk report is prepared for the Management Board and the heads of risk-taking units and Head Office 

divisions and departments. 

Operational Risk 

Risk Management Risk Controlling 

Risk-taking Units ZCR/RC 

123

124 


(47) BALAnCE OF DErIVATIVES OUTSTAnDInG (BAnKInG BOOK) 

€k Nominal, by term to maturity 

To 1 year 1 – 5 years > 5 years 

Interest rate contracts 68,454 699,848 267,624 

OTC products 68,454 699,848 267,624 

Interest rate swaps 68,454 699,848 267,624 

– Calls 34,227 349,924 133,812 

– Puts 34,227 349,924 133,812 

Interest rate options — — — 

– Puts — — — 

Currency contracts 903,756 1,044,409 — 

OTC products 903,756 1,044,409 — 

Currency forwards 103,301 572 — 

– Calls 50,122 278 — 

– Puts 53,179 294 — 

Capital market swaps 384,025 1,043,837 — 

– Calls 192,106 519,145 — 

– Puts 191,919 524,692 — 

Money market swaps (currency swaps) 416,430 — — 

– Calls 205,753 — — 

– Puts 210,677 — — 

Securities contracts — — — 

OTC products — — — 

Options on other securities contracts — — — 

– Calls — — — 

– Puts — — —


Nominal Fair value (positive) Fair value (negative) 

31/12/2008 31/12/2007 31/12/2008 31/12/2007 31/12/2008 31/12/2007 

1,035,926 828,983 3,156 5,792 21,158 8,564 

1,035,926 828,983 3,156 5,792 21,158 8,564 

1,035,926 789,088 3,156 5,792 21,158 8,422 

517,963 394,544 32 4,537 11,018 722 

517,963 394,544 3,124 1,255 10,140 7,700 

— 39,895 — — — 142 

— 39,895 — — — 142 

1,948,165 2,184,652 2,444 13,938 16,120 9,050 

1,948,165 2,184,652 2,444 13,938 16,120 9,050 

103,873 229,634 512 340 3,579 1,582 

50,400 114,142 229 7 3,255 1,490 

53,473 115,492 283 333 324 92 

1,427,862 1,297,221 1,903 3,443 7,264 6,921 

711,251 646,871 1,903 — — 2,051 

716,611 650,350 — 3,443 7,264 4,870 

416,430 657,797 29 10,155 5,277 547 

205,753 333,629 29 — 70 547 

210,677 324,168 0 10,155 5,207 — 

— 7,400 — 1,174 — 1,174 

— 7,400 — 1,174 — 1,174 

— 7,400 — 1,174 — 1,174 

— 3,700 — 1,174 — — 

— 3,700 — — — 1,174 

125

126 


BALAnCE OF DErIVATIVES OUT STAnDInG (TrADInG BOOK) 

€k Nominal, by term to maturity 

To 1 year 1 – 5 years > 5 years 

Interest rate contracts 120,360 122,400 1,680 

OTC products 120,360 122,400 1,680 

Interest rate swaps 120,360 122,400 1,680 

– Calls 60,180 61,200 840 

– Puts 60,180 61,200 840 

Forward rate agreements — — — 

– Calls — — — 

– Puts — — — 

Currency contracts 1,000 — — 

OTC products 1,000 — — 

Currency options 1,000 — — 

– Calls 1,000 — — 

– Puts — — — 

FInAnCIAL InSTrUMEnTS (TrADInG BOOK) 

€k 31/12/2008 31/12/2007 

Interest-bearing securities 166 5 

Equities and investment fund units 1,969 17,307 

Repurchase agreements 5,537 5,537 

Positions (securities and derivatives) entered into by Money, Foreign Exchange and Securities Trading to take advantage of 

market gains or interest rate fluctuations were assigned to the trading book. Market value is the amount that could be obtained 

from the sale of a financial instrument in an active market or would need to be paid to purchase it. If a market price was available, 

this was taken to be a position’s fair value. Where market prices were unavailable, we used internal valuation models, 

including in particular present value techniques.


Nominal Fair value (positive) Fair value (negative) 

31/12/2008 31/12/2007 31/12/2008 31/12/2007 31/12/2008 31/12/2007 

244,440 640,452 471 718 523 741 

244,440 640,452 471 718 523 741 

244,440 620,452 471 718 523 733 

122,220 310,226 30 718 492 — 

122,220 310,226 441 — 31 733 

— 20,000 — — — 8 

— 10,000 — — — — 

— 10,000 — — — 8 

1,000 9,428 16 70 — 69 

1,000 9,428 16 70 — 69 

1,000 9,428 16 70 — 69 

1,000 4,714 16 70 — — 

— 4,714 — — — 69 

127

128 


Closing remarks by the 


The Management Board of BKS Bank AG prepared the Consolidated Financial Statements 

as at and for the 12 months ended 31 December 2008 in accordance with the International 

Financial reporting Standards (IFrSs). These Consolidated Financial Statements satisfy 

the legislative requirements for exemption from the preparation of consolidated financial 

statements in accordance with Austrian law and are in conformity with the applicable EU 

regulations. 

The Consolidated Financial Statements and the Group Management report contain all 

the requisite disclosures. In particular, events of particular importance after the close of 

the financial year and other circumstances of material importance for the Group’s future 

development were presented appropriately. 

Heimo Penker 

The Management Board 

Herta Stockbauer



BKS Bank AG’s 2008 financial year closed with net profit of €7,304,146.46. We propose that 

a dividend of €1.50 per share be distributed out of reported net profit as at 31 December 

2008. The resulting distribution on 4,680,000 shares would be €7,020,000. Subject to § 65 

Abs. 5 Aktiengesetz (Austrian stock corporation act), we propose that the remainder be 

carried forward to a new account. 

Klagenfurt 

20 February 2009 

Heimo Penker 

The Management Board 


129

130 


Independent Auditor’s Report 

[Translation Provided by the Auditors] 

Report on the Consolidated Financial Statements 

We have audited the accompanying consolidated financial statements of 

BKS Bank AG, 

Klagenfurt, Austria 

for the financial year from 1 January to 31 December 2008. Those consolidated financial 

statements comprise the consolidated balance sheet as at 31 December 2008, and the 

consolidated income statement, statement of changes in equity and cash flow statement 

for the financial year ended 31 December 2008, and a summary of significant accounting 

policies and other explanatory notes. 

Management’s Responsibility for the Financial Statements 

Management is responsible for the preparation and fair presentation of these consolidated 

financial statements in accordance with International Financial Reporting Standards 

(IFRSs) as adopted by the EU. This responsibility includes: designing, implementing 

and maintaining internal control relevant to the preparation and fair presentation of 

financial statements that are free from material misstatement, whether due to fraud or 

error; selecting and applying appropriate accounting policies; and making accounting 

estimates that are reasonable in the circumstances. 

Auditor’s Responsibility 

Our responsibility is to express an opinion on these consolidated financial statements 

based on our audit. We conducted our audit in accordance with laws and regulations applicable 

in Austria and in accordance with International Standards on Auditing (ISAs) 

issued by the International Auditing and Assurance Standards Board (IAASB) of the 

International Federation of Accountants (IFAC). Those standards require that we comply 

with ethical requirements and plan and perform the audit to obtain reasonable assurance 

whether the consolidated financial statements are free from material misstatement. 

An audit involves performing procedures to obtain audit evidence about the amounts and 

disclosures in the consolidated financial statements. The procedures selected depend on 

the auditor’s judgment, including the assessment of the risks of material misstatement 

of the consolidated financial statements, whether due to fraud or error. In making those 

risk assessments, the auditor considers internal control relevant to the entity’s preparation 

and fair presentation of the consolidated financial statements in order to design


audit procedures that are appropriate in the circumstances, but not for the purpose of 

expressing an opinion on the effectiveness of the entity’s internal control. An audit also 

includes evaluating the appropriateness of accounting policies used and the reasonableness 

of significant accounting estimates made by management, as well as evaluating the 

overall presentation of the consolidated financial statements. 

We believe that the audit evidence we have obtained is sufficient and appropriate to 

provide a basis for our audit opinion. 

Opinion 

Our audit did not give rise to any objections. Based on the results of our audit, in our 

opinion, the consolidated financial statements comply with the laws and regulations and 

present fairly, in all material respects, the financial position of the group as of 31 December 

2008 and its financial performance and its cash flows for the financial year from 

1 January to 31 December 2008 in accordance with International Financial Reporting 

Standards (IFRSs) as adopted by the EU. 

Report on Other Legal Requirements 

Laws and regulations applicable in Austria require us to perform audit procedures whether 

the group management report is consistent with the consolidated financial statements 

and whether the other disclosures made in the group management report do not give rise 

to misconception of the position of the group. 

In our opinion, the group management report is consistent with the consolidated financial 

statements. 

Klagenfurt 

20 February 2009 

KPMG Austria GmbH 

Wirtschaftsprüfungs- und Steuerberatungsgesellschaft 

Signed: 

Peter Fritzer Wilhelm Kovsca 

Wirtschaftsprüfer Wirtschaftsprüfer 

(Austrian Chartered Accountants) 

131

132 

Additio 

Notes

nal 

Organizational structure of BKS Bank 

Key equity investments 

Branches and representative offices 

The 3 Banken Group at a glance 

Glossary 

134 

135 

136 

138 

140 

133

134 

Organizational structure 

CEnTrAL HEAD OFFICE 

DEPArTMEnTS 

Office of the 


Herbert Titze 

Controlling 

Hubert Cuder 

Human Resources 

Werner Laure 


Dieter Krassnitzer 


ABROAD 

Branches 

Slovenia (Ljubljana, Maribor) 

Subsidiaries 

BKS Bank d.d. (Rijeka) 

BKS-Leasing a.s. (Bratislava) 

BKS-leasing d.o.o. (Ljubljana) 

BKS-leasing Croatia d.o.o. (Zagreb) 

Representative Offices 

Slovenia (Ljubljana) 

Croatia (Zagreb) 

Italy (Padova) 

Hungary (Sopron) 

Slovakia (Bratislava) 

MAnAGEMEnT BOArD 

Heimo Penker 


HEAD OFFICE 


Viktor König 


Karl Mertel 

Treasury and 

International Business 

Josef Morak 

Credit Risk Management 

Michael Oberwalder 

Operations 

Johannes Zebedin 

Service and Production 

Georg Köferle 

REGIONAL HEAD OFFICES 

Klagenfurt 

Wolfgang Mandl 

Diethmar Wölle 

Villach 

Georg Ahammer 

Sabine Lax 

Spittal/Drau 

Gottfried Kindler 

Styria 

Werner Boruta 

Nikolaus Juhasz 

Vienna 

Gunnar Haberl 

Burgenland 

Bernhard Bauer 

Günther Perner 

As in March 2009.


Key equity investments 

Percentage of equity capital held > 50% 20% – 50% 10% – 20% < 10% 

EqUITY InVESTMEnTS In BAnKS AnD OTHEr 

FINANCIAL SERVICE PROVIDERS 

BKS-Leasing GmbH 100.00% 

BKS-Immobilienleasing GmbH 100.00% 

BKS-leasing d.o.o 100.00% 

BKS-leasing Croatia d.o.o. 100.00% 

BKS Bank d.d. 99.79% 

BKS-Leasing a.s. 100.00% 

Alpenländische Garantie-GmbH 25.00% 

Oberbank AG 16.95% 

3 Banken-Generali Investment-GmbH 15.43% 

Bank für Tirol und Vorarlberg AG 13.59% 

Oesterreichische Kontrollbank AG 3.06% 

Bausparkasse Wüstenrot AG 0.91% 

PayLife Bank GmbH 1.44% 

OTHEr EqUITY InVESTMEnTS (SUBSIDIArIES) 

BKS Immobilien-Service GmbH 100.00% 

IEV Immobilien GmbH 100.00% 

Immobilien Errichtungs- und Vermietungs GmbH & Co. KG 100.00% 

BKS Zentrale-Errichtungs- u. Vermietungs GmbH 100.00% 

VBG Verwaltungs- und Beteiligungs GmbH 100.00% 

BKS Hybrid alpha GmbH 100.00% 

BKS-2000 Beteiligungsverwaltungs GmbH 100.00% 

– Beteiligungsverwaltung GmbH 30.00% 

– Generali 3 Banken Holding AG 16.40% 

– 3-Banken Beteiligung GmbH 30.00% 

OTHEr EqUITY InVESTMEnTS (nOn-BAnKS) 

DREI-BANKEN-EDV GmbH 30.00% 

Drei-Banken Versicherungs-AG 20.00% 

Einlagensicherung der Banken & Bankiers GmbH 3.10% 

Wiener Börse AG 0.50% 

135

136 


Branches and representative offices 

HEAD OFFICE 

Town or City Address Dialling Code Number 

9020 Klagenfurt St. Veiter Ring 43 +43-463 5858-0 

rEGIOnAL HEAD OFFICES AnD AFFILIATED BrAnCHES In AUSTrIA (as in February 2009) 


Klagenfurt-Neuer Platz Regional Head Office and affiliated branches 

9020 Klagenfurt Dr.-Arthur-Lemisch-Platz 5 +43-463 5858-201 

9020 Klagenfurt Fischlstrasse 5 +43-463 330 320-0 

9020 Klagenfurt Maria-Platzer-Strasse 2 +43-463 218 090-0 

9020 Klagenfurt St. Ruprechter Strasse 55 +43-463 320 120-0 

9020 Klagenfurt St. Veiter Ring 43 +43-463 5858-516 

9020 Klagenfurt Durchlass-Strasse 4 (ATM site) +43-463 5858-516 

9020 Klagenfurt Radetzkystrasse 42 +43-463 511 650-0 

9020 Klagenfurt Völkermarkter Strasse 165 +43-463 320 100-0 

9020 Klagenfurt Siebenbürgengasse 3 +43-463 281 300-0 

9300 St. Veit an der Glan Kirchgasse 11 +43-4212 5901-0 

9330 Treibach-Althofen 10.-Oktober-Strasse 6 +43-4262 2027-0 

9210 Pörtschach am Wörther See Hauptstrasse 204 +43-4272 2741-0 

9100 Völkermarkt Hauptplatz 11 +43-4232 3162-0 

9400 Wolfsberg Am Weiher 9 +43-4352 3281-0 

9400 Wolfsberg Klagenfurter Strasse 35 +43-4352 4281-0 

9462 Bad St. Leonhard Hauptplatz 6 +43-4350 2394-0 

Villach Regional Head Office and affiliated branches 

9500 Villach Hauptplatz 18 +43-4242 2011-0 

9500 Villach August-von-Jaksch-Strasse 16 +43-4242 29 444-0 

9500 Villach Millesistrasse 29 +43-4242 56 222-0 

9500 Villach 10.-Oktober-Strasse 18 +43-4242 29 700-0 

9500 Villach Ossiacher Zeile 50 +43-4242 29 333-0 

9500 Villach Karawankenweg 5 +43-4242 37 777-0 

9560 Feldkirchen 10.-Oktober-Strasse 10 +43-4276 3150-0 

9620 Hermagor 10.-Oktober-Strasse 5 +43-4282 2409-0 

9241 Wernberg Industriestrasse 1 +43-4252 44 900-0 

Spittal an der Drau Regional Head Office and affiliated branches 

9800 Spittal an der Drau Hauptplatz 6 +43-4762 2626-0 

9800 Spittal an der Drau Tiroler Strasse 20 +43-4762 4875-0 

9546 Bad Kleinkirchheim Thermenstrasse 2 +43-4240 405-0 

Graz Regional Head Office, affiliated branches und sales unit 

8010 Graz Kaiserfeldgasse 15 +43-316 8002-0 

8010 Graz Sparbersbachgasse 63 +43-316 328 000-0 

8010 Graz Petersgasse 118 +43-316 481 200-0 

8010 Graz Heinrichstrasse 47 +43-316 328 300-0 

8054 Graz Kärntner Strasse 287 +43-316 281 199-0 

8054 Graz Andritzer Reichsstrasse 42 +43-316 693 080-0 

8330 Feldbach Franz-Josef-Strasse 9/1 +43-3152 67 320-0 

8230 Hartberg Wiesengasse 1 +43-3332 65 210-0 

8200 Gleisdorf Ludwig-Binder-Strasse 24 +43-3112 36 944-0 

8430 Leibnitz Kadagasse 1 +43-3452 71 710-0 

8530 Deutschlandsberg Frauentalerstrasse 21 +43-4362 30 070 

8160 Weiz Birkfelder Strasse 22 +43- 3172 30 350-0



Vienna Regional Head Office and affiliated branches 

1010 Wien Am Lugeck 7 +43-1 512 2607-0 

1210 Wien Franz-Jonas-Platz 10 +43-1 294 8270-0 

1120 Wien Am Euro Platz 2 +43-1 810 6433-0 

Burgenland Regional Head Office and affiliated branches 

7210 Mattersburg Hauptplatz 11-12 +43-2626 611-0 

7000 Eisenstadt Ruster Strasse 85 +43-2682 75 980-0 

2700 Wiener Neustadt Grazer Strasse 104 +43-2622 64 400 

7122 Gols Untere Hauptstrasse 1 +43-2173 3246-0 

7221 Marz Hauptstrasse 49 +43-2626 64 611-0 

7350 Oberpullendorf Hauptplatz 1 +43-2612 42 356-0 

2460 Bruck/Leitha Alte Wiener Strasse 52 +43-2162 68 850-0 

(Please log on to www.bks.at for the e-mail addresses of our branches and offices) 

BrAnCHES AnD BUSInESS UnITS ABrOAD (as in February 2009) 

Town or City 

Branch or business unit 

Address Internet Dialling Code Number 

SLO-1102 Ljubljana Dunajska cesta 161 www.bksbank.si +38-61 58 909-00 

SLO-2113 Maribor Ulica Vita Kraigheria 1 www.bksbank.si +38-62 29 095-00 

HR-1000 Zagreb Ivana Lucica 2a www.bksbank.hr +38-51 631 2730 

HR-51000 Rijeka Mljekarski trg 3 www.bksbank.hr +38-50 5135 3555 

rEPrESEnTATIVE OFFICES OF THE 3 BAnKEn GrOUP 

Town or City Address Internet Dialling Code Number 

Foreign representative offices of BKS Bank 

SLO-1102 Ljubljana Dunajska cesta 161 www.bksbank.si +38-61 58 909-00 

HR-10000 Zagreb Ivana Lucica 2a www.bks.hr +38-51 631 2710 

I-35139 Padova Piazzetta Sartori 17 www.bksbank.it +39-049 21 048-00 

H-9400 Sopron Szent György utca 16 www.bks.hu +36-99 508 960 

SK-82109 Bratislava Mlynské nivy 48 www.bksbank.sk +421 258 239 660 

Foreign representative offices of BTV in Italy 

I-35121 Padova Via G.B. Morgagni 12 btv-padova@btv-bd.191.it +39-0347 800 4288 

I-39100 Bolzano Sernesiplatz 34 btv-bozen@btv-bz.191.it +39-0471 981 903 

I-37135 Verona Via del Perlar 2 btv-verona@btv-vr.191.it +39-045 584 678 

137

138 



6 

6 

7 

7 

6 

5 

5 

4 

3 

5 

4 

1 

1 

1 

4 

3 

3 

2 

2 

SHArEHOLDEr STrUCTUrE OF BKS BAnK AG 

By voting interest By capital share 

1 Oberbank AG 19.73% 18.47% 

2 Bank für Tirol und Vorarlberg AG 19.84% 18.57% 

3 Generali 3 Banken Holding AG 


7.95% 7.44% 

gem. reg. Genossenschaft mbH 2.99% 2.85% 

5 Free float 12.20% 16.64% 

6 UniCredit Bank Austria AG 7.36% 8.02% 

7 CABO Beteiligungs GmbH 29.93% 28.01% 

SHArEHOLDEr STrUCTUrE OF OBErBAnK AG 


1 BKS Bank AG 18.62% 16.95% 

2 Bank für Tirol und Vorarlberg AG 18.61% 17.00% 


5.16% 4.62% 

gem. reg. Genossenschaft mbH 

4 Generali 3 Banken Holding AG 2.22% 1.98% 

5 Staff shares 4.37% 4.04% 

6 Free float 18.24% 26.26% 


SHArEHOLDEr STrUCTUrE OF BAnK FÜr TIrOL UnD VOrArLBErG AG 

2 


1 BKS Bank AG 15.10% 13.59% 

2 Oberbank AG 14.69% 13.22% 

3 Generali 3 Banken Holding AG 15.12% 13.60% 


2.53% 2.28% 

gem. reg. Genossenschaft mbH 

5 Free float 10.86% 19.78% 


note: The shareholders shown in red have signed a syndicate agreement.



InCOME ACCOUnT, €m 

BKS Bank Group Oberbank Group BTV Group 

2008 2007 2008 2007 2008 2007 

Net interest income 130.2 108.6 300.7 276.2 146.4 123.0 

Charge for Impairment losses on loans and 

advances 

(20.0) (19.2) (67.8) (68.4) (29.3) (29.2) 

Net fee and commission income 40.8 44.9 97.8 101.8 42.4 47.3 

General administrative expenses (87.9) (82.8) (199.8) (203.2) (93.3) (88.1) 

Profit for the year before tax 44.4 59.6 114.0 112.9 50.2 60.0 

Consolidated net profit 41.9 50.8 105.0 102.5 50.3 53.3 

BALAnCE SHEET DATA, €m 

Assets 5,975.7 5,752.7 15,314.0 14,330.8 8,495.6 8,053.3 

Receivables from customers after impairment 

losses 

4,186.1 3,561.6 9,248.6 8,499.2 5,750.4 5,160.0 

Primary funds 3,945.1 3,781.8 10,016.7 8,839.6 6,352.8 6,173.1 

– Of which savings deposit balances 

– Of which liabilities evidenced by paper, 

1,677.5 1,443.7 3,301.9 2,899.2 1,245.9 1,126.9 

including subordinated debt capital 452.0 451.8 1,897.4 1,694.8 1,289.7 1,283.0 

Equity 464.7 450.6 894.1 889.5 553.6 537.3 

Customer funds under management 8,739.3 10,057.9 17,039.1 16,887.3 10,258.4 10,982.1 

– Of which in customers’ securities accounts 4,794.2 6,276.1 7,022.4 8,047.7 3,905.6 4,809.0 

OWn FUnDS WITHIn THE MEAnInG OF BWG, €m 

Risk-weighted assets 4,087.7 4,039.2 9,970.2 10,079.1 5,613.7 5,586.9 

Own funds 450.9 405.1 1,286.1 1,293.6 670.6 662.3 

– Of which Tier 1 281.9 235.9 824.7 720.5 429.2 394.0 

Surplus own funds before operational risk 123.9 82.0 487.1 485.2 221.5 215.4 

Surplus own funds after operational risk 102.7 82.0 436.5 485.2 201.0 215.4 

Tier 1 ratio, % 6.90 5.84 8.27 7.15 7.61 7.05 

Own funds ratio, % 11.03 10.03 12.90 12.83 11.93 11.85 

PERFORMANCE, % 

Return on equity before tax 9.71 13.74 12.83 13.21 9.20 11.44 

Return on equity after tax 9.16 11.71 11.82 11.99 9.22 10.15 

Cost:income ratio 50.11 52.63 52.36 52.80 48.94 51.10 

risk:earnings ratio 15.36 17.70 22.54 24.80 20.01 23.70 

RESOURCES 

Average number of staff 860 803 1,983 1,879 879 849 

Branches 54 51 134 126 44 42 

139

140 

Eligible own funds 

within the meaning 

of BWG 

Asset backed 

securities 

Entities accounted 

for using the equity 

method 

Payout ratio 

The banking book 

Basel II 

Basis of assessment 

within the meaning 

of BWG 

Credit standing 

Gross domestic 

product (GDP) 


Glossary 

According to solvency rules, banks must at all times hold eligible own funds in the amounts specified in 

§ 22 Abs. 1 Z 1 bis 5 BWG. Eligible own funds are the sum of Tier 1 capital and supplementary elements 

(Tier 2) less items requiring deduction. Tier 3 capital is only recognizable in respect of regulatory cover 

for the trading book and open currency positions. 

Asset backed securities (ABSs) are interest bearing securities giving rise to pecuniary claims against a 

special purpose entity. The special purpose entity uses the funds exclusively to purchase creditor claims, 

usually the claims of more than one creditor, and then issues a security to document them. The claims 

are usually claims arising from loans, high-yield bonds, mortgages, credit card transactions, licences and 

franchises, other assets, leases and supplies of goods and services. 

Entities accounted for using the equity method are entities that are not controlled but upon whose 

financial and business policy decisions a significant influence can be exerted. On a consolidated balance 

sheet, they are recognized in the amount of the group’s interest in their equity. In a consolidated income 

statement, the group’s interest in their profit for a year is recognized according to the percentage held. 

The payout ratio is the proportion of profit for a year distributed to the equity holders. It depends mainly 

on the enterprise’s self-financing needs and the returns insisted upon by its equity holders. 

The banking book contains all on-balance-sheet and off-balance-sheet items recognized on a bank’s 

balance sheet that are not assigned to the trading book. 

Basel I was the name of the first standards regulating the capital adequacy of banks, issued in 1988. This 

so-called Accord has now been revised by the Basel Committee. The core aims of Basel II are to align 

capital requirements for banks more closely than before with economic risks and to take account of more 

recent developments in the financial markets and banks’ risk management activities. The new Accord, in 

force since the beginning of 2008, provides for a series of simple and advanced approaches to measuring 

credit and operational risks so as to determine a bank’s own funds requirement. 

The basis of assessment within the meaning of BWG is the sum of assets, off-balance-sheet items 

and special off-balance-sheet items in the banking book, weighted for business and counterparty risk, as 

determined in accordance with Austrian bank regulators’ rules. 

Credit standing describes a debtor’s creditworthiness and ability to pay. The less good a debtor’s credit 

standing is felt to be, the higher the likelihood of a loan loss — and the higher the interest that will be 

have to be paid by the borrower or issuer of bonds as a risk premium. 

Gross domestic product (GDP) is a gauge of a country’s economic performance in a reporting period. It 

measures the value of domestically produced goods and services (value added) insofar as these are not 

used as inputs in the production of other goods and services. The inflation-adjusted (= real) rate of change 

of GDP serves as a measure of an economy’s growth.


Cash flow is an indicator of an enterprise’s financial strength, including above all its internal 

financial leeway. In other words, it is an expression of the enterprise’s ability to meet the 

costs of its investing activities, debt service and any profit distributions to its owners out 

of its own resources in addition to financing its day-to-day operating activities. 

Carry trading can, among other things, be part of an investment strategy in the currency 

market. The investor usually takes out a comparatively low-interest (foreign currency) loan 

and invests the funds in a currency that offers comparatively high rates of interest. The carry 

return results from the difference between the credit interest rate and the debit interest 

rate and from the foreign exchange gain or loss. The investor bears both the currency risk 

and the interest rate risk. 

Collateralized debt obligation is an umbrella term for a financial instrument belonging to 

the categories of securities collateralized by debt obligations (see also asset backed securities) 

and structured credit products. As a rule, collateralized debt obligations are divided into 

different packages of different risk. The complexity of these products, their lack of transparency 

and the rating agencies’ inability to rate them probably played a not inconsiderable 

role in deepening the present financial crisis. 

A corporate governance code lays down guidelines and rules of conduct to ensure the 

transparent management and monitoring of enterprises. The recommendations contained 

in Austria’s Corporate Governance Kodex create transparency and strengthen confidence that 

an enterprise is being responsibly managed. 

The cost:income ratio compares a bank’s operating expenses with its operating income. It 

is calculated by dividing the bank’s general administrative expenses during the financial year 

under review by its operating income. Profit from operating activities is made up of net 

interest income, net fee and commission income, net trading income and other operating 

profit or loss. This indicator states the percentage of operating income used up by general 

administrative expenses, providing information about an enterprise’s cost management and 

cost efficiency. The lower the ratio, the more economically a company is operating. 

Cross-selling is a marketing term for the sale of supplementary products and services. The 

aim is for the enterprise to sell its customers more and a greater variety of its own products 

and services. 

Delta is a risk indicator used when measuring the performance of options. It is one of the 

sensitivity indicators in the Black-Scholes option pricing model. It expresses the sensitivity 

of an option’s price to changes in the price of the underlying asset. 

Derivatives are usually financial instruments whose own value changes in response to 

changes in the market price (s) of one or more other financial instruments. Generally, 

Cash flow 

Carry trade 

Collateralized debt 

obligation 

Corporate 

governance 

Cost:income ratio 

Cross-selling 

Delta 

Derivatives 

141

142 

Dividend per share 

Own funds 

Own funds ratio 

Fair value 

Available-for-sale 

(AfS) financial assets 

Held-to-maturity 

financial assets 

Maturity 

transformation 

The Gini coefficient 

Going-concern 

principle 

The trading book 


derivatives embody rights to the delivery or acceptance at a future date of specific assets 

such as securities or foreign exchange at a fixed, previously agreed price. Options, futures 

and swaps are examples of derivatives. 

Dividend per share describes the earnings distributed on a proportionate basis in respect 

of one share of a stock corporation. The amount of the dividend distribution is decided by 

the equity holders during the Annual General Meeting (AGM). 

Own funds are a bank’s own capital resources, as opposed to outside capital provided by 

investors. Depending on their quality, one differentiates between various tiers. At least 

half of a bank’s own funds must consist of Tier 1 capital. Additional own funds are known 

as Tier 2. 

The own funds ratio expresses, as a percentage, the relationship between a company’s 

own funds and its basis of assessment within the meaning of BWG. 

Fair value is defined as the amount for which an asset could currently be exchanged, or a 

liability settled, between knowledgeable, willing parties in an arm’s length transaction. Insofar 

as relevant market prices existed on exchanges or other functioning markets, these were 

taken to be an asset’s or liability’s fair value. 

Available-for-sale (AfS) financial assets are non-derivative financial assets that are designated 

as available for sale or are not classified as loans and receivables, held-to-maturity 

investments, or financial assets designated as at fair value through profit or loss. 

Held-to-maturity (HtM) financial sets are acquired financial instruments with fixed 

or determinable payments and fixed maturity that an entity has the positive intention and 

ability to hold to maturity. 

Maturity transformation is the professional management of differing maturities and the 

associated differences between the rates of interest receivable and payable on assets and 

equity and liabilities on a bank’s balance sheet while taking account of current and expected 

market rate curves and maturity structures. 

The Gini coefficient is a measure of inequality of wealth distribution or inequality of 

income distribution invented by the Italian statistician Corrado Gini. 

The going-concern principle is the principle according to which financial statements view 

the enterprise as continuing in business unless actual or legislative circumstances dictate 

otherwise. Among other things, this is important when measuring assets. 

The trading book contains all positions held by a bank within the scope of its proprietary 

trading in financial instruments that are held for re-sale or have been acquired so as to


exploit, on a short-term basis, existing or expected differences between buying and selling 

prices or fluctuations in prices or interest rates. Positions not included in the trading book 

are assigned to the banking book. 

Hedging is used to protect existing or future positions against the exposure to risks such 

as currency and interest rate risks. It involves taking a counter-position to another position 

so as to completely or partially offset risk. 

A hybrid bond is a deeply subordinated, long-term corporate bond. Because a hybrid 

bond is an equity bond, and depending on its configuration, BWG may allow hybrid capital 

to be counted towards consolidated equity. In the event of insolvency, hybrid bonds 

will be serviced last of the subordinated obligations, but their coupon premium is usually 

relatively high. 

ICAAP (the Internal Capital Adequacy Assessment Process) is the name of the extensive 

process and associated strategy with which banks determine the amount, composition 

and distribution of the (internal) capital resources that they deem to be adequate to cover 

all the material banking and operational banking risks to which they are exposed. 

The International Financial Reporting Standards (IFRSs) are the individual financial 

reporting standards published by the International Accounting Standards Board 

(IASB). The purpose of annual financial statements prepared in accordance with IFrSs is 

to give investors information of relevance to their decisions regarding an entity’s assets, 

liabilities and financial position and the results of its operations as well as changes therein 

over time. In contrast, annual financial statements prepared in accordance with the Austrian 

Unternehmensgesetzbuch (UGB: enterprises code) are primarily geared to protecting 

creditors. 

IFRS earnings per share are consolidated net profit divided by the average number of an 

enterprise’s shares in issue. 

Under Basel II, the internal ratings based approach is a second possible approach to calculating 

the minimum capital adequacy requirement for credit risk alongside the standardized 

approach. The IrB approach allows banks to use their own, internal estimates of borrowers’ 

credit standings. However, a bank’s rating processes must meet stringent requirements, 

and their suitability will be continuously monitored by the bank regulators. Banks can 

choose whether to adopt the foundation IRB approach or the advanced IRB approach. 

Investor relations (IR) describes the active cultivation of relationships between an enterprise 

and existing shareholders, prospective shareholders and financial analysts. 

ISIN stands for International Securities Identification Number. The ISIn serves the unique 

Hedging 

Hybrid bond 

ICAAP 

International 

Financial Reporting 

Standards 

IFRS earnings per 

share 

Internal ratings based 

approach 

Investor relations (IR) 

ISIN 

143

144 

Tier 1 

Tier 1 ratio 

P/E ratio 

Market capitalization 

MiFID 

Primary funds 

Return on assets 

(ROA) 

Return on equity 

(ROE) 

Recession 


global identification of securities. It replaced Austria’s national securities codes (WKn: 

Wertpapierkennnummern) in 2003. An ISIN is a 12-character alphanumerical code comprising 

a two-character international country ID (e.g. AT for Austria), a nine-character 

national code and a one-digit control key. The ISIn of the ordinary BKS Bank AG share is 

AT0000624705; that of the preference share is AT0000624739. 

Tier 1 capital consists of paid-in capital, hybrid capital and reserves and goodwill from the 

elimination of investments in and equity of subsidiaries on consolidation in accordance with 

the provisions of BWG less intangible non-current assets and treasury shares. 

The Tier 1 ratio is Tier 1 capital expressed as a percentage of the basis of assessment 

(banking book). 

The P/E ratio is important to investors when assessing shares. To calculate it, the share’s 

stock market price is divided by the per-share earnings recorded or expected in the relevant 

period. If the P/E ratio is relatively low, the share is felt to be cheaply priced; if it is relatively 

high, it is seen as expensive. The bases for comparing P/E ratios are the interest rate, the P/E 

ratios of comparable enterprises, average P/E ratios in the past and, in the case of growth 

stocks, the expected rate of growth. 

Market capitalization is the stock market value of an enterprise on a particular date. It is 

calculated by multiplying the number of shares in issue by the current stock market price 

of one share. 

The Markets in Financial Instruments Directive (MiFID) lays down common rules 

for securities services within the European Economic Area. MiFID’s primary goals are to 

increase market transparency and promote competition between providers of securities 

services and, therefore, to improve investor protection. 

Primary funds consist of the customer funds made available to a bank in the form of saving, 

sight and time deposit balances, liabilities evidenced by paper and subordinated debt capital. 

The return on assets (ROA) is profit (net profit for the year after minorities) expressed as 

a percentage of average assets employed. 

The return on equity (ROE) before or after tax expresses the relationship between profit 

before or after tax and average equity. The higher this figure is, the more profit the enterprise 

has made in relation to its equity. 

A recession is a phase in the economic cycle when the annual rate of GDP growth is negative. 

A real quarter-on-quarter GDP contraction in two consecutive quarters is known as a 

technical recession. It does not necessarily mean negative annual growth.


The risk:earnings ratio expresses the relationship between credit risk costs and net interest 

income. This percentage states what proportion of net interest income has been used 

to cover credit risk. 

The term solvency expresses the relationship between the own funds requirement arising 

from a bank’s (weighted) balance sheet assets and off-balance-sheet items and its eligible 

own funds within the meaning of BWG. Solvency is regulated by § 22 BWG. 

Parties to a swap exchange financial obligations, fixed-interest obligations being exchanged 

for variable ones (interest rate swap) or sums in various currencies being exchanged (currency 

swap). Interest rate swaps make it possible to hedge against interest rate risks, resulting 

in a fixed interest rate that provides a firm basis for calculations. Currency swaps make 

it possible to hedge against currency risks by swapping amounts (principal) denominated 

in different currencies together with the associated interest payments. 

Tier: See Eligible own funds within the meaning of BWG. 

Value at risk is one expression of risk. It is the potential loss that, within a specified holding 

period and with a specific probability, will not be exceeded. 

Consolidated entities are material, controlled entities whose assets, equity, liabilities, 

income and expenses net of consolidation items are accounted for in their entirety in consolidated 

financial statements. 

A yield curve expresses the dependence of an interest rate or yield on the term to maturity 

of an investment. Typically, an investor will get a higher return from a long-term fixed 

investment than from a short-term one. In other words, the rate or yield will rise with the 

term to maturity. This is what one describes as a normal yield curve (or term structure). A 

yield curve is described as flat if rates and yields are more or less the same regardless of 

the term to maturity. 

note: For the reader’s convenience, the order of the German glossary has been retained. 

risk:earnings ratio 

Solvency 

Swap 

Tier 

Value at risk 

Consolidated entities 

Yield curve 

145

146 


Forward-looking statements 

This Annual report contains statements and forecasts concerning the future performance 

and development of the BKS Bank Group. These forecasts are estimates made by 

us on the basis of all the information available to us on the copy deadline of 28 February 

2009. If the assumptions upon which such forecasts are based prove wrong or if risk 

events — such as those mentioned in the risk report — transpire, actual results may 

differ from those that are currently expected. This Annual report does not constitute a 

recommendation to buy or sell shares of BKS Bank AG. 

This is an unaudited translation of the original Annual report in German published in 

April 2009. 

Publication details 

Published by: BKS Bank AG 

St. Veiter ring 43, A-9020 Klagenfurt, Austria 

Phone: +43-463-5858-0 

Fax: +43-463-5858-329 

BIC: BFKKAT2K 

Bank sort code: 17000 

DVr (data processing code): 0063703 

UID (EU VAT no.): ATU25231503 

Fn (company register no.): 91810s 

Internet: www.bks.at 

e-mail: bks@bks.at, investor.relations@bks.at 

Edited by: Office of the Management Board of BKS Bank AG 

Photos: Gernot Gleiss 

Concept and design: gantnerundenzi.at 

Graphic art: bos.s grafik, Sigrid Bostjancic 

Sub-editor: Andreas Hartl 

Printing and lithography: Carinthian-Bogendruck, Klagenfurt 

Paper: Ikonofix, chlorine-free, Group 1 (Greenpeace) 

Translation: Adrian Weisweiller MA (Oxon), London 

The translation of the Auditors’ report was provided by the Auditors.

Corporate Governance Report - BKS Bank

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